You have the choice to have your refinance paying off all of your Non-Recurring Closing Costs on most refinances. This is frequently called as a No Points No Fees (NPNF) Refinance. you will need to accept a slightly higher rate than a normal No Points mortgage in order to obtain a No Closing Cost Refinance. Normally around 250% to .500% higher.
Non-Recurring Closing Costs including : Recording Fees, Escrow Fees, Title Insurance, Broker Fees, Lenders Fees, Credit Report, and Appraisal Fee. While insurance, interest, and property taxes don`t qualify as Non-Recurring Closing Costs.
If you happen to be short on cash to close on a purchase or planning to own property less then five years, then a no cost loan could be appropriate for you. By simply looking at the difference in your payment for a no cost loan vs. a loan with costs and then dividing that difference into the sum of non-recurring closing costs that you would have to pay at closing, it will be easy to calculate your break-even point. This will convert the numbers of months required to re-coup the expense of the closing costs from the result of this calculation and that from this you can make comparison of the time frame to the length of time you decide living in the property.
The Comparison of No Cost Loan
Let’s examine a scenario shown above that compare a zero point loan with no cost loan. You are thinking on two points offered on a $300,000 loan. Option A is a no cost loan at the rate of 6.25% and a defrayment of $1,847 compared to option B, a loan with zero point with a rate of 6.00% and based on non-recurring closing costs of $2,800 and a monthly defrayment of $1,799. The amount of $49 per month would be the difference in payment and if you divide this difference into the closing cost`s base of $2,800, the months needed to achieve break-even (BE) or recoup the costs is 57.73 months. In order to annualized the equation and it would take 4.81 years to re-coup the costs of the zero point loan vs. the no cost loan, then divide the number of months by 12. It is considered to be the most sense by taking the no cost loan. Now let`s compare the base closing costs with the no cost loan as well as points. Once again options a is at no cost and has a rate of 6.25%.
At 1 point plus base closing costs of $2,800, option c has a rate of 5.75%. The total non-recurring closing costs (NRCCs) with the point would be $5,800 and the defrayment under option C would be $1,751. With the non-recurring closing costs (NRCCs) being paid by the lender (or already included in the rate), the payment under option A is $1,847. it would be $96 per month in the difference in payment and the closing costs would equal 60.15 months after divided into the $5,800, which divided by 12 months to annualized, to achieve break-even would take 5.01 years. The no cost loan is a make sense option for being provided the fact that a home proprietor will tend to refinance within 5 years and given time value of money.
