With refinancing rates at record levels, mortgage refinancing activity is high. There are many reasons to refinance now, but remember that means taking out a whole new loan and refinancing fees. In the excitement of mortgage refinancing savings, many borrowers do not take into account the total cost of the loan, including payment for closing.
In order to really maximize the savings on a mortgage refinancingIt is essential to understand how to refinance your mortgage without closing costs. Here are some ways to get a mortgage without them (or reduce them significantly).
3 Ways To Avoid Closing Costs On A Refinance Loan
Apply for a “no closing costs” mortgage
There are “no closing costs” mortgages, and these are popular with borrowers who does not like to part with cash reserves or are looking to refinance in a year or two after their initial purchase. Since taking out two loans in a short period of time can be costly, “no closing cost” mortgages allow borrowers to take advantage of refinancing savings by incorporating closing costs into the loan.
To see your mortgage refinancing options today, check out Credible. Credible can help you compare pre-qualified rates from multiple lenders in minutes.
Keep in mind that a mortgage with no closing costs is not necessarily a free “get out of jail” card in terms of refinancing costs; they are still there. The only difference is that instead of bringing a check to the closing which is money out of your pocket, you will roll the closing costs into your new loan and pay them back over the life of the loan. These fees will be included in your new monthly mortgage payment.
A “no-closing mortgage” is attractive, but borrowers often pay for the ease of transactions through a higher interest rate or higher monthly payment. To determine if the loan costs outweigh the refinancing savings, perform the calculations to determine if the interest rate really saves you money once the new loan costs are factored in. Ask: What would my savings be if I paid cash at closing instead?
Closing towards the end of the month
Closing at the end of the month isn’t just cleaner in terms of monthly payments; it also reduces costs for the borrower. Since mortgages are paid in arrears (meaning you pay the loan payment by May on June 1), when you close a loan, the borrower prepays any daily interest for the days between closing. of the loan and the first of the following month. This is called prepaid interest.
Due to prepaid interest, closing at the end of the month means you’ll pay less daily interest because there are fewer days between closing and the first of the following month. For example, if your daily interest is $ 20 per day, the close on May 30 means you will pay $ 40 of prepaid interest (for May 30 and 31). If you close on May 21, you’ll pay $ 220 of prepaid interest.
To see how much you could save with mortgage refinancing today, insert simple information into Credible’s free online tools.
Ask: What is my daily interest rate and how much can I save by closing later in the month?
Check army or union discounts
Membership in the armed forces or certain credit unions may entitle borrowers to low or no closing costs on mortgage refinances. For those who aren’t military or credit union members, be sure to check with your primary financial institution anyway. Many banks offer special incentives or lower closing costs to existing customers in order to keep more of your business “in-house”.
For those who are currently shopping, the best way to check out lenders is to study the options and potential benefits of closing costs. via an online aggregator such as Credible.
Ask: which lender has the lowest closing costs?
What are the mortgage rates today?
When evaluate a mortgage refinance It is important to check interest rates weekly, as market fluctuations will influence the rise or fall of rates. According to Freddie Mac, the interest rates are 2.93% for a 30-year fixed loan and 2.42% for a 15-year loan. But don’t assume that the rates for one week are the same as you will see the next. Check out websites like Credible to stay current with interest rate offers.
If you decide to refinance to take advantage of the current low interest rate environment, be sure to get a rate foreclosure letter from your lender and complete the paperwork as quickly as possible.