No Cost Refinances, And How They Work

A few years ago, everyone was offering "no cost refinances."  The loan officer would pay all of the borrowers closing costs for them (lender and title company fee's).  This was great for the borrower who wouldnt have to come out of pocket for closing costs, and wouldnt have to increase their loan amount to roll in the closing costs.  The way the loan worked is the borrower would agree to take a slightly higher interest rate (loan officers get paid more yield spread on a higher interest rate), and then would give a "lender credit" for the amount of closing costs.  These loans still are out there today, but since most borrowers don't understand how they work, its hard to explain why they have to take a higher interest rate.  The good thing is, with rates as low as they are, the loan is still very effective.

There are a few fee's that your loan officer will not, and should not pay for the borrower.  Any state or county tax assosiated with the transaction should not be paid by the loan officer.  It is the borrowers responsablity to pay any tax on the transaction.  Also, the loan officer shouldn't pay to set up the borrowers new escrow account.  Since that money is being refunded by the old lender to the borrower, that money should either be rolled into the new loan, or paid out of pocket by the borrower.  As long as a borrower understand exactly how the loan works, it is still a very effective loan, and will help a borrower save some money.

Speak to a loan officer about a no cost refinance?

more information on no cost refinances

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