No Cost Refinance Mortgages Are Best For the Short Term

Using a no cost refinance can be enticing depending on your situation. Although these types of mortgages might sound attractive regardless of the circumstances, they are typically best suited for short-term endeavors. Here are the basics of no cost refinance mortgages and when you should consider using them.

No Cost Refinance Mortgages

As the name implies, a no cost refinance mortgage is a mortgage loan in which you do not have to pay any closing costs. With this type of mortgage, the individual that uses it is not going to have to pay the normal amount of money to the lender when they close his or her loan. Instead, the mortgage lender is going to pay all of the closing costs for them. 


Even though this might seem like an obvious type of mortgage to get, it is not perfect. In order to offer the incentive of not paying closing costs, the lender has to make up for it in some other way. In most cases, the lender is going to do this by increasing the interest rate and charging more over the life of the loan. By doing this, they are going to be able to make up the difference over the long-term.

Short-Term Solution

This type of mortgage refinance is best used by individuals that only need a short-term solution. If you are going to be in your house for the next 30 years, this is most likely not going to be the best option to pursue. The mortgage lender is going to make up the amount of money that you saved over the course of the mortgage. However, if you cut the mortgage short, they are not going to be able to make up the difference. Because of this, you should only consider this type of mortgage if you are going to be in your house for 10 years or less. If you are only going to be in your house for three to five years, this is definitely a good option to investigate.

Finding Rates

If you have made the decision to pursue a no cost refinance, you will need to begin shopping around for it. This is the type of mortgage that you are going to want to work with several different mortgage lenders on. Rates for this type of mortgage can vary wildly. Therefore, you want to look at all of the different rates that are in front of you before making a decision.

Start out by working with a lender that you are familiar with. You might even try to see if the lender that currently has your mortgage offers this type of loan. In many cases, they may be willing to give you a better deal because you have worked with them in the past. 

After checking with lenders that you are familiar with, you should also get online and find some of the rates that are available. By doing this, you will be able to find the lowest rate and save some money.