Why do no cost mortgage refinancing?


No cost mortgage refinancing can be a lot cheaper in the short run. For example, let's see the following example, using a web calculator.

Mortgage Refinance Comparison Between A No Cost and Traditional Mortgage
No cost mortgage refinancing Traditional mortgage refinancing
Amount $150,000 $150,000
Years 30 30
Interest 7% 6%
Points (discount plus origination) 0% 1.5%
Any additional closing costs paid in cash 0 $1,155
Tax bracket 25% 25%
Years to keep the home before another refinance 5 5
No cost mortgage vs regular mortgage refinancing results
Monthly Payment (Principal and Interest) $1007 $908
Total closing costs $0 $3,655
Break-even (years) Appr. 4 years

You could get a simple estimate of the break-even period yourself, dividing the cash-paid closing costs by the difference in the monthly payment. This will give you the number of monthly payments you will make before the break-even for the no cost mortgage refinance vs the traditional mortgage refinance occurs. Have in mind that different calculators may exhibit different result, if they take into account:

  • how closing costs were paid - by cash, or were rolled into the loan;
  • inflation levels;
  • level of return of other financial instruments.
Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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