Is There Such Thing As A No-Fee Re-Finance Mortgage Loan? What Is The Catch?

Issue 32.12

I get this question fairly often.   And, there is no mystery.  On the radio, you hear one of the largest mortgage lenders in the country in “Quicken Loans” advertise that today’s mortgage rates are at historic lows and that the 30 year fixed rate is at 3.75% with anAPRof 3.95%

So, the actual percentage rate is 3.95% not 3.75% because of the associated loan costs up-front in a mortgage loan today.  You may have origination points from the bank, processing and underwriting charges etc… If you incorporate these costs into the loan on the front end and subtract the loan amount by these costs then the actual interest rate on an annual basis is a result of a slightly higher interest rate annually, Thus, we get theAPRor the actual or Annual Percentage Rate.

TheAPRis a tool for the consumer to compare lenders and or banks in trying to compare apples to apples.  Some banks or lenders can charge higher fees and a lower initial interest rate.  Why, some charge less fees and a higher initial rate.  Consequently, theAPR’s are or can be the exact same rate.

Therefore, in a “No Fee or No Cost” loan the lender or bank will raise the interest rate slightly, (Maybe an eighth or a quarter of one percent) than the current  market rate that a bank may charge in normal closing costs with a mortgage loan.  Because of having no fees, the lender is charging you the same interest rate as theAPR, because there are no fees to calculate further into the rate.  So, the actual interest rate or theAPRis the same rate as the initial interest rate because there are no fees.

A No Cost Loan certainly makes it easy to decide if the loan makes sense or not to re-finance.

It is as simple as that because if you can re-finance your mortgage when it doesn’t cost you any fees, meanwhile lowering your monthly payments while keeping the same number of years remaining to pay off your current loan, then what is there to argue. Why wouldn’t you refinance today!

Today, most banks and lenders should be able to customize a loan that fits your needs and look at loan costs while taking advantage of today’s record low interest rates and make it easier for you as a consumer to make a decision on the benefits of a re-finance immediately.

Usually it is a no-brainer to look at re-financing when you’re able to lower your interest and reduce your monthly payment and have it cost zero.  If you can take out a “NO-FEE” loan, and reduce your monthly payment then most likely it makes sense no matter how old we are!

The only other decision I like to look at is that I don’t want my clients to extend the amount of years that it will take to pay off the existing loan.  So, if we are re-financing a 30 year fixed mortgage and we have had it for the past four years, then I like to make sure the option remains to pay the new loan off in 26 years if the client so chooses for example.  Thereby, the client reduces their current interest rate, lowers their payment, and keeps the same amortization schedule as we have on the existing loan, but most importantly have this re-finance cost you zero dollars.

So to answer our question from the beginning, there is truly a no-cost loan out there and most lenders will or can give you various options that you can consider with your re-finance and the costs that are associated with any loan.

Brandon Hansen is a senior mortgage banker for Cherry Creek Mortgage and a Registered Investment Advisor Representative in St. George and SunRiver.  www.seniorbankingtoday.com  435-525-2266 / 435-773-4164.