No Cost Refinance or Mortgage Loans

No closing cost refis may or may not fit your situation 

 When is a no cost refinance or mortgage loan worthwhile?

Here is some simple math that should help you decide if a no cost mortgage or home refinance loan is right for you. First make these 4 calculations:

1. Calculate how much you would save per year due to lower interest with a refinance or original mortgage loan that has closing costs.

2. Calculate your exact closing costs with that full cost mortgage or refinance option option.

3. Guess how many years you will be living in that home

4. (Here is the difficult part) Try to estimate how many years before you will refinance (again) your mortgage. Use the experience of friends, family, neighbors, and yourself. Know that no one can predict where mortgage rates will go over that time.

Now, with those numbers in hand, this might help you decide:

If the answer for # 1 multiplied times either answer # 3 or answer # 4 is higher than answer # 2, than the no cost mortgage refinance option might be a good one for you. Sound complicated? Here are two examples:

- $500 savings per year x planning to live there for 4 years = $2000. If closing costs are $2500, you actually are paying $500 more than you save.

- $500 savings per year x unlikely to refinance again and likely to live there for 10 years = $5000. If closing costs are $2500, you will still save $2500 in the long run, so a closing cost mortgage may be better for you.

As with any financial decision, you should check with your financial adviser about your unique situation before choosing between a regular mortgage refinance and a no cost refinance or original mortgage loan. Other factors may be involved, and this page obviously could be an oversimplification.