Reader: But they said it was a “no-cost” refi…by Tim Manni
Surprisingly, we’ve been hearing from more and more readers who have said their lenders have reached out to them, soliciting a refinance (see our Tuesday post).
Another one of our readers just wrote to us this afternoon, explaining that his lender offered him a refinance at “little or no cost.” Confusion quickly turned to anger when our reader found out that this refinance offer was far from free:
My bank Wells Fargo is trying to get me to refinance. What bugs me is their teaser letter states at little or no cost. This led me to believe there were no closing costs. WRONG! After they quoted me 5.75% and I questioned why so high, I was advised that the rate included PMI — which I currently have — but also closing costs. My current rate is 6.25%. How can they say little or no costs? People need to really scrutinize these offers because banks doing nothing for free!!! Their making out if I refinance and my savings works out to a small amount. Not sure I will go through with it. I might see if any other banks are interested.
Luckily for borrowers like the reader who left us this comment, HSH.com recently designed a completely unique refinance calculator that allows users to compare the costs and savings of three different refinance strategies.
Once you decide you’re going to refinance, you have to decide how you’re going to pay for it. Perhaps more importantly, you must determine if and/or when your financing costs turn into savings.
Here are your three financing options: a traditional refinance (paying loan fees out of pocket), a low-cash-out refinance (rolling your refinancing costs into your new loan amount) and a no-cost refinance (choose to pay nothing upfront by accepting a higher interest rate). Keep in mind, as our reader found out, nothing is actually “free”:
Technically, a no-cost refinance isn’t strictly no cost, of course, but it does mean you pay no cash out of pocket. Everything costs money and no one works for free.
Along with our new and unique refinance calculator that allows you to compare each refinance strategy side-by-side, we’ve written articles which explain the ins and outs of a traditional, low-cash-out and no-cost refinance.
Be sure to check out our new refinance calculator and our recent articles and let us know if you have any more questions.