Refinance Your Mortgage for Free No Closing Costs For Real

With mortgage rates at historic lows, now is a great time to refinance your current loan.  Even if you refinanced within the last 2 years at a 5% rate, you can still save.  Most banks are offering sub 4% loan rates.  Plus, if you refinanced within the last year, most banks can save you closing costs of having an appraisal done.  They may be able to use the one you just had performed.

Of course, if you are in a home that the value has dropped lower than what you owe on the property, getting a conventional loan to refinance your home is nearly impossible. 

Bottom line.  If you have more than 20% equity in your home maintain a good credit score (around 800) you can get some pretty awesome deals out there now.  Here are a few things I found helpful when refinancing my home recently. 

You've probably heard the saying, "nothing in this world is free." I thought that there was no such thing as a "no closing cost" refinance until recently. I have had many offers to refinance where I pay closing costs such as recording of deed, attorney charges, and origination charges by rolling them into the loan or rate. With these offers, I wouldn't have to bring cash to close the loan, and those costs would simply be rolled into the loan.  This is not free.

But with the competition of refinancing loans increasing, some banks are offering free refinancing to current customers who qualify. Plus, they don't roll ANY COSTS into the loan, and you get a really good rate too. They want to keep you, so they may be able to offer you a rate that can't compare to anyone else, plus offer no closing costs. I personally know of a loan where a customer was contacted by the bank and refinanced a 5% loan down to 3.875% with NO CLOSING, NO POINTS, NO NOTHING.

Why would they do this?

First, the customer was a prime client. The owner had at least 50% equity in the home, been a customer of the bank for at least 7 years, has excellent credit, and always makes payments on time. They know there is a possibility in this market, they stand a chance of losing this customer to a lower rate. I mean, who hasn't heard that rates are at historical lows.

The bank may have some up-front costs to keep this loan, plus lose some money on the lower rate, but they will keep this loan in the long run. So call your bank, and start with them first. You may refinance your mortgage for free.

There are a few things that are not free.  Nor are they the responsibility of your lender.  These costs include insurance on your home and property taxes that are often paid annually.  If you apply funds into an escrow with every payment to fund these needs, you probably have money in that escrow account now.  The bank may be able to roll these funds over to properly fund the account.

If you do not refinance with your current lender, the bank you refinance with may require these escrow funds be paid at closing.  For example they may need 3-6 months of taxes and insurance in the account.  Just be very clear and don't be afraid to ask your lender questions.  If they don't give you straight answers, walk away.

Also beware of teaser rates.  Work with a lender that is very clear and can give you a clearly defined good faith estimate.  

Finally, remember, a loan where the lender rolls closing costs into the back end of the loan is not free.  Neither is a loan that offers no closing costs, but is offering you a rate that is higher than other banks.  Be sure to shop around for the best rates so you know if you are paying more in the long run of your loan.