If you are refinancing to lower your monthly payments, you may be wondering how much you will pay in interest on a loan with no closing cost mortgage. This depends on several factors. Here is a look at closing costs and the effects they can have on your mortgage payoff.
Closing costs can be heavy usually on mortgages of all kinds, but especially those with adjustable rate mortgages (ARM). Closing costs will add to the interest rate of your mortgage. To estimate closing costs, first consider the total amount of money you are borrowing and the interest rate you are planning to use. For a rough estimate, think about that on a typical $250,000 house you may pay from two percent to five percent at the closing table. Add this to the interest rate you plan to use and it is easy to see how the additional lender fees could jack up your monthly payments.
Mortgages with no closing cost mortgage are very tempting because of their very low closing costs. While it is true that a no closing cost mortgage is less expensive than one with a higher interest rate, they come with certain trade-offs. Closing costs are a factor in your overall mortgage payment. The trade-off for lower interest rate may mean a slightly higher payment when the end of term arrives.
No closing cost mortgages can also be a risky deal. If you are refinancing to consolidate other debts or pay down other debt, you run the risk of a higher loan balance or worse, default. You also risk losing your home if you are unable to make the required payments. If you take on too much debt to support your new loan balance, you will be in more trouble than you ever imagined when you took out the loan.
As mentioned earlier, the primary reason homeowners take out this type of loan is to lower their mortgage interest rates. The lower the mortgage interest rate, the more money you save. But if the new closing cost mortgage goes above the amount you can afford to pay, you are not doing yourself any favors. You will simply be wasting money on paying off the closing costs at an interest rate that is too high. This extra expense could have been saved had you known ahead of time that your situation did not allow for a lower closing cost mortgage.
If you plan on getting a no closing cost mortgage refinance, take note of all costs involved. You will want to look into prepayment penalties, transaction fees and other miscellaneous charges. This will ensure you get the best deal possible without overpaying for your new mortgage refinance.
Remember that even when you get a no closing cost mortgage refinance, it is up to you to make sure you can afford to keep the new loan payments every month. You must have some emergency funds set aside before you start paying for your new loan. You do not want to be in a worse situation down the road by overextending yourself financially. And if you can not handle your new loan payments with a higher interest rate, you might end up in financial trouble even worse than you are now.
Another thing to watch for is the lender’s terms of service. Some lenders require prepayment penalties in order to take advantage of a no closing costs loan. If you find this requirement, call the lender before signing on the dotted line. You may find that there are other options available to you that don’t involve paying a prepayment penalty. You should never settle for a lender that wants you to pay for prepayment penalties in the future. Instead, shop around for a different lender that doesn’t require prepayment penalties.