Refinancing with No Closing Costs: What's the catch?

[Anonymous]

I pulled this question out of another thread. I've done some looking through old posts and seen that most people said that they tend to offset the closing costs with a higher rate, but I currently have two companies saying they could refinance our jumbo loan at 4% - one with closing costs (about $5,000) and the other without any closing costs. Obviously, I'd rather not pay closing costs, but feel as though there must be a 'catch'. Does anybody have any experience with this?

[Anonymous]

Usually the costs are included in the loan balance, points, or in a higher rate.

[Anonymous]

Anonymous wrote:I pulled this question out of another thread. I've done some looking through old posts and seen that most people said that they tend to offset the closing costs with a higher rate, but I currently have two companies saying they could refinance our jumbo loan at 4% - one with closing costs (about $5,000) and the other without any closing costs. Obviously, I'd rather not pay closing costs, but feel as though there must be a 'catch'. Does anybody have any experience with this?

Depends on the financial institution.

With a credit union you're less likely to have a "catch."

With a bank, they must figure they're locking you in b/c rates can't go much lower.

Please tell me who is refinancing your jumbo loan in this fashion as I would like that action. Thank you.

[Anonymous]

Is the one company rolling the closing costs into the principal on the new refinanced loan? Usually, you either pay a higher rate for a no closing cost loan or they roll the closing costs into the new loan.

[Anonymous]

Also, don't you restart the term of your loan--so say you had already paid off 8 years of a 30 year mortgage, you're resetting to a brand new 30 year loan, essentially giving them 8 more years of interest.

[Anonymous]

OP Here. The company offer the no closing cost deal is Embrace Home Loans. I asked the agent if the costs are being rolled into the loan and he said no, but obviously I would need to confirm this if I moved forward with paperwork. We would be starting a new 30 year loan, but we can prepay to reduce the term, which shouldn't be a problem if we continue to pay our currently monthly payment (which is about $300 more than the new loan would require). I am worried because this feels like a 'too good to be true' situation and wonder if I am not asking the right questions of the agent.

[Anonymous]

When you say no closing costs, what costs does that take out? We are also working with Embrace homeloans and they haven't offered anything nearly as good as what you're suggesting. More like about 4% with about $3500 closing costs on a non-jumbo loan. Does no closing costs cover appraisal, underwriting, etc?

Thanks!

[Anonymous]

Anonymous wrote:When you say no closing costs, what costs does that take out? We are also working with Embrace homeloans and they haven't offered anything nearly as good as what you're suggesting. More like about 4% with about $3500 closing costs on a non-jumbo loan. Does no closing costs cover appraisal, underwriting, etc?

Thanks!

I have specifically asked about the appraisal and they have said that we would pay the cost up front and then it would be credited to us at closing. He says that other costs (title search, recording fees) will appear on the GFE (because they have to by law) but will also be credited at closing.

[Anonymous]

It just means that your no closing cost lender has a more competitive rate. Just like some lenders can offer 3.75% and some can only offer 3.875% or 4%. The "no closing cost" is probably equivalent to about an eighth or a little more of a percentage point in interest on the loan.

[Anonymous]

We have been getting SOO many phone calls about streamline re-financing. Everyone always says no cost and they want us to meet with the agent who would come to the house. The last company was AmeriGroup.

As 15:47 we have gotten a GFE which included all the cost (including the transfer taxes) and the final was about $20K. I also asked about the actual numbers but they said it's the worst case scenario and they are obligated by law to list them all.

Overall, for us it was $500 savings a month, but it would take us over 4 yrs to pay it back. Not worth it to us - especially that that our new mortgage will be higher than what we started with.

[Anonymous]

Back in October of last year we did a jumbo refi with closing costs covered by the lender. Rate was 4.25 but did have to cover the prepaids which were then reimbursed to us a month after the old mortgage was paid off. Your offer sounds ligit.