Beware of Brokers Who Offer Mortgage Refinance No Closing Cost Loans
Although it seems like an attractive option, homeowners need to be wary of lenders and brokers who offer mortgage refinance no closing cost loans. Most loans that homeowners are familiar with include a certain cost of doing business. Some of the fees associated with home loans and mortgages may include, but are not limited to, origination points, broker points, processing fees, underwriting fees, servicing fees, title fees, escrow fees, and many others. Some of these fees you cannot avoid no matter how hard you try and no matter what is tentatively offered by the lenders. Fees like title and escrow are third party costs and are so substantial that they cannot be absorbed by the lender. Also, all of these fees have to be disclosed and in many states it is illegal for the lender to pay them.
The only fees that the lender or broker can truly waive are origination points or broker fees such as processing and underwriting. Any third party fees such as appraisal, title, escrow, shipping, notary, legal or court costs cannot be avoided, even under a supposed mortgage refinance no closing cost loan.
All lenders are obligated by law to provide TIL (Truth-in-Lending) statements and that is where you will find whether or not the claim of mortgage refinance no closing cost is just a claim or a reality. Even if a lender does not charge origination or broker points that does not mean that they are not making money. It does not make much sense for a broker or lender to make a loan if they are not going to make any money does it?
Brokers and lenders can make money without showing it on the TIL by charging their fees to the investor or parent bank that is making the actual loan. They do this by raising the interest rate to the borrower. They can do this in a variety of ways but the most common is just to purchase the loan at a discounted rate and re-sell it to the homeowner at a higher rate. They use a point-spread differential and get rebates paid to them and these can be very large. Since the borrower only hears mortgage refinance no closing cost they may never realize that they are actually paying more over the long run by having a higher interest rate than if they paid closing costs in the first place.
Although it seems like an attractive option, homeowners need to be wary of lenders and brokers who offer mortgage refinance no closing cost loans. Most loans that homeowners are familiar with include a certain cost of doing business. Some of the fees associated with home loans and mortgages may include, but are not limited to, origination points, broker points, processing fees, underwriting fees, servicing fees, title fees, escrow fees, and many others. Some of these fees you cannot avoid no matter how hard you try and no matter what is tentatively offered by the lenders. Fees like title and escrow are third party costs and are so substantial that they cannot be absorbed by the lender. Also, all of these fees have to be disclosed and in many states it is illegal for the lender to pay them.
The only fees that the lender or broker can truly waive are origination points or broker fees such as processing and underwriting. Any third party fees such as appraisal, title, escrow, shipping, notary, legal or court costs cannot be avoided, even under a supposed mortgage refinance no closing cost loan.
All lenders are obligated by law to provide TIL (Truth-in-Lending) statements and that is where you will find whether or not the claim of mortgage refinance no closing cost is just a claim or a reality. Even if a lender does not charge origination or broker points that does not mean that they are not making money. It does not make much sense for a broker or lender to make a loan if they are not going to make any money does it?
Brokers and lenders can make money without showing it on the TIL by charging their fees to the investor or parent bank that is making the actual loan. They do this by raising the interest rate to the borrower. They can do this in a variety of ways but the most common is just to purchase the loan at a discounted rate and re-sell it to the homeowner at a higher rate. They use a point-spread differential and get rebates paid to them and these can be very large. Since the borrower only hears mortgage refinance no closing cost they may never realize that they are actually paying more over the long run by having a higher interest rate than if they paid closing costs in the first place.