A no fee refinance allows a home owner to refinance his or her existing mortgage with very low or no costs at all. Traditionally, one of the largest deterrents to refinancing a home is the large upfront cost associated with the refinance. Closing costs usually add up to between $2000 and $3000 dollars not including any points that might have to be paid. These costs are the reason it doesn’t make sense financially to refi every time rates drop down a tick. With a no fee refinance however you can profit from movements in interest rates as small as 1/8 of a percent.
Are no fee refinancing offers really free? Usually they are not entirely free. Home owners generally have to pay for an appraisal unless one has been performed in the previous six months of applying for the refi. Home appraisals typically range in cost from $300-$500. This is the only out of pocket cost you should have to pay for. If a lender tries to saddle you with any other additional costs you should walk away.
Even if you are fortunate enough to not have to pay for an appraisal a no-fee refinance is not really “free”. The old adage, “there is no such thing as a free lunch” applies here. Lenders make up the difference of them absorbing all closing costs by charging higher interest rates than on a traditional refinance loan.
In recent years, an even bigger hurdle than closing costs has prevented home owners from being able to take advantage of historic low interest rates by refinancing their homes. This hurdle is the 80% loan to value (LTV) requirement that is now strictly enforced after the financial crisis and housing collapse in the late 2000’s. Most property values across the country have plummeted between 20-50% since the peak of the real estate bubble. Home owners are finding that in order to refinance they must pay large lump sums of principle to increase their equity so that the 80% LTV can be achieved. This can amount to an order of magnitude larger than refi closing costs and has put many would be refinancers in a bind.
Dutiful savers have taken advantage of mortgage interest rates that having been falling for years. Having cash on hand has proven to be a very wise move. It is not unusual for some to refinance every 6 months to take advantage of falling rates with no fee refinancing. The only downside to doing so is the frequent credit checks could be detrimental to one’s credit score. Those who track interest rates closely and refi at opportune times are able to save thousands in mortgage interest in exchange for paying only hundreds in appraisal fees. In some cases, an appraisal may not even be required. If your LTV is under 50% many lenders will not require an appraisal.
No fee refi’s are not as profitable for lenders as traditional refinance loans so they are not advertised as much. To find the best available no fee refi rates it is advised to search first for the best normal refinance rates and the call the lender directly and inquire about any no-fee options. Generally, lenders with the lowest refi rates also offer the lowest no-fee refi’s. BankRate.com is a great resource that will allow you to quickly search to find the best options available in your city and state.