Today, I will be talking about No Cost, No Points Refinance as a way to lower monthly mortgage payments without paying a costly closing cost. As some of you may know, we recently bought our third home in September 2023. Unfortunately, we had to trade off our 3% interest mortgage at our previous townhome for a 7.3% interest mortgage on our single family residence. Timing wasn’t in our favor as we saw family growth. But this didn’t deter us from making the move! However, within 6 months, we have already refinanced.
We used a lender who offered no cost, no points refinance. Our mortgage interest went down 0.5% ( from 7.3% down to 6.8%). This led to a reduction in our monthly mortgage payments of over $1000! Since we have only been at our new home for 6 months, this didn’t reset the timeline of repayment by much at all. Our mortgage now ends 6 months later than it would have. In the long-term, this is inconsequential. Now we have an extra $1k per month to put towards other things.
I wanted to share this no cost, no points refinance because people may not be aware of this option. If you are looking to refinance, you need to make sure the numbers make sense. The mortgage interest rates haven’t gone down much in the last 6 months. Because closing costs are high, it may not make sense to refinance in order to save a fraction of a percent, since your savings may be offset by the cost of refinancing. I bet that dissuades many people from lowering their monthly payment. However, it does not hurt to ask your lender (or other lenders out there) if they are willing to do a no cost, no points refinance for you.
No cost has to truly mean no cost. How are lenders able to do this? They can only do this if they give you an interest rate that’s slightly higher than the lowest possible. The costs are hidden in the rate. However, if that interest rate is still lower than the highs we have seen in the last year, then it is totally worth it to me!
One con is that it resets your loan timeline. But I am assuming if you have a high interest rate, you recently closed your loan. Everyone pre-2021 probably refinanced or closed at or around 3%. Meaning, those with 6.5% interest rates and higher likely closed in the last two years. Resetting your mortgage repayment timeline won’t be too big an effect if that is the case. I would prefer to take the lower monthly payments and invest that extra money into something diversified that will give higher returns, because I know that I can always pay off my loan earlier with those returns if I wish to. I also just like to diversify my portfolio and increase cash at hand today.
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