February 5, 2015 by Leave a comment

Refinancing your mortgage loan is one of the best ways to snag a lower interest rate and a cheaper mortgage payment — a major plus if you’re struggling to stay current on your home loan. Refinancing achieves other purposes as well, such as converting a fixed-rate mortgage to an adjustable-rate mortgage. You can refinance and borrow cash from your equity, and if you’re getting a divorce or parting ways with a co-borrower, refinancing is the only way to get someone’s name off a mortgage loan.

In spite of the benefits, you might put off applying for a new mortgage because you fear closing costs. Since refinancing replaces an existing home loan, you’ll pay closing costs which include a title search fee, an appraisal and the loan origination fee. Closing costs range from two percent to five percent of the mortgage balance, and buyers typically pay this cash out-of-pocket at closing.

Learning that refinancing involves closing costs prompts many to stick with their current home loan, even if they know they can qualify for a better one. However, just because you don’t have cash available for closing doesn’t mean you can’t refinance. As a matter of fact, lenders know it’s difficult for borrowers to bring thousands to the closing table, and to keep refinancing within reach, many banks offer low or no-fee refinancing. This provision is a win-win for you. You can refinance your mortgage and take advantage of a better rate and lower payment, and you don’t have to drain your bank account.

Here’s a look at three ways to get a low or no-fee mortgage refinancing.

1. Apply with your present lender

Mortgage lending is competitive — and in most cases, your lender wants to retain your business. If you’re thinking about refinancing but can’t afford closing costs, bring this to your current lender’s attention. To keep you as a customer, the bank might waive some of the closing costs or pay these fees for you, especially if you’ve received quotes from other banks offering no-fee or low-fee refinancing.

2. Wrap closing costs into the mortgage balance

Technically, there’s no such thing as a no-fee refinancing. There’s going to be costs, and you’re going to pay these costs one way or another. However, instead of paying a lump sum at closing, if you receive a no-fee refinance, your lender wraps the closing costs into the new mortgage loan. So, if you’re refinancing a $200,000 mortgage loan, and the closing costs are $6,000, your new mortgage balance is $206,000. This approach slightly increases how much you owe on your mortgage, but at least you avoid paying thousands out-of-pocket.

3. Pay a higher mortgage interest rate

If you can’t afford to pay closing costs out-of-pocket, some banks will waive the fee or pay your closing costs in exchange for a higher mortgage rate. For example, if you pay your own closing costs you might qualify for a mortgage rate of 4.1 percent, but if the bank pays these costs, the mortgage rate might jump to 4.5 percent, allowing the bank to recoup its money.

If you need to refinance, don’t feel discouraged because you don’t have cash for closing costs. Speak with your lender to discuss your options. Also, contact two or three other banks for a free mortgage quote. Comparison shopping ensures you receive the best rate and terms.

Eric Khan is a Senior Mortgage Banker licensed in 23 states. Eric has been in the mortgage industry for over 10 years, and can be contacted by phone at 203-783-4593 or by email at [email protected] NMLS# 184348.

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