Zero Cost Refinance
What is it?
A mortgage program that allows the borrower to refinance his or her home without incurring any of the normal closing costs associated with obtaining a mortgage. The closing costs are not rolled into the loan amount. YOU DO NOT INCREASE YOUR DEBT. The borrower receives a cash credit from the lender at settlement which offsets the closing costs. In some cases, the lender credit exceeds the sum of the costs which results in the lender actually paying the borrower to refinance.
What’s the initial interest rate?
The rate is about 1/4 percent higher than a mortgage program that carries typical closing costs. There are no points, no title insurance costs, no appraisal fees, no recording fees, no underwriting fees, absolutely zero transactional closing costs.
For whom is this product appropriate?
There are several situations that would warrant a refinance with zero closing costs.
- Any home owner with a 30, 20 or 15 year fixed rate mortgage with a rate that’s higher than the currently offered zero cost rate. Traditional refinance programs that carry thousands in fees and closing costs requires a considerable drop in rate in order to justify the costs. Since the zero cost program carries no fees, dropping the interest rate by as little as 1/4 percent, or even 1/8 percent makes sense – instant savings.
- Any homeowner planning on being in the home for less than five or seven years can save even more money. There are zero cost 5/1 and 7/1 ARMs available that enable the borrower to refinance to an even lower rate and save more money. So if you have refrained from refinancing because you plan on moving within a few years, think again. A zero cost ARM refi might be right for you.
- Folks seeking cash out would want to consider a zero cost refinance. The borrower will net more cash because the closing costs are paid by the lender, and not deducted from the loan proceeds.
- Folks who have limited equity in their home can often benefit from a zero cost refi. The loan amount doesn’t have to be raised to cover the closing costs because there are no closing costs.
What are the benefits of this product?
The biggest benefit of a zero cost refinance is that it allows borrowers to be “nimble” with their mortgage debt. During the last 15 years or so, hundreds of PMC clients rode the wave of declining interest rates by refinancing to a lower zero cost rate. In 2000, for example, 30 year fixed rates were higher than eight percent. As rates slowly started to fall, folks with rates in excess of eight percent were able to take “baby steps” down and pay no points or closing costs. By the end of 2014, some home owners locked into 30 year fixed rates below 4% with no closing costs.
The zero cost refinance carries zero risk. If interest rates fall, borrowers can refinance again at no cost.
Are there restrictions?
Of course. Everything has restrictions. There are loan amount limits, credit score limits and loan-to-value restrictions, among other things. But most folks qualify and it’s up to a PMC professional to let you know if you can save some money. If we think you can, we’ll send you a loan summary. If not, we’ll tell you right over the phone. But it’s worth a call. Have the basic information about your loan ready.
For more detailed information on the zero cost refinance program, please click here for a link to one of PMC President Henry Savage’s published columns.