Are "no-cost" refinances too good to be true?

Wednesday, July 20, 2011 - Article by: Gregorio Denny - Brookstone Mortgage Corporation -

No-cost refinances are available but with an explanation. Nothing is free, so the term "no-cost" is not exactly accurate. A no-cost refinance is accomplished by taking a slightly higher interest rate that will credit Yield Spread Premium back to you. This credit will be applied to your closing costs thus reducing or eliminating the funds that are normally required at closing. It's important to consider your long and short term goals before you decide if the higher rate with reduced/no fees is better versus taking the lower rate and paying fees. A qualified loan officer will be able to show you both options side-by-side and calculate a break even point. It's important to remember that the lowest rate is not always the best rate for you. Make sure when you are shopping, you are looking for the best rate; this may or may not be the lowest rate.

Here is an example of a no-cost refinance that is available today.

7/20/11
Loan amount $250,000
Single Family Primary Residence
740 Credit score
80% LTV or less with no impounds

Note Rate 4.75%
APR 4.75%

ORIGINATION CHARGES $0
Underwriting Fee $995.00
Appraisal Fee $435.00
Credit Report Fee $35.00
Closing/Escrow Fee $425.00
Notary Fee $150.00
Lender's Title Insurance $625.00
Courier $45.00

Credit to borrower for 4.75% interest rate. $(2,710.00)

Principal & Interest $1,304.12
Due at Closing $0.00