Houston Refinance: Is a No Closing Cost Refinance Worth it?

Is a No Closing Cost Refinance Worth it?

People often wonder whether or not it makes sense to have a no closing cost refinance. My answer?

It depends. It all depends on what you are trying to accomplish?

Are you going to refinance to reduce the interest rate and plan to stay at your home for over 5 years? Or are you going to refinance to cut your monthly bill by $200 and plan to move in a year or two?

Let’s break this down in numbers so we can see what I’m talking about.

I have a client who bought a house recently and he had taken out a mortgage that currently has 5.25% rate at 30 years fixed. And now the interest rate is so low that he wanted to refinance to get a better rate. Now he has great credit, has a W-2 income, and he planned to stay at his house for a long time. His house appraised at $240K when he bought it and he still owes about $189K. He plans to stick with 30 years fixed and the current market rate is 4.5% (no points) for 30 year fixed.

His monthly payment is $1044 on the mortgage and he only plans to pay for the appraisals and no other costs. I calculated for him that the rate would be 4.875% in his case for a no closing closing refinance. His new monthly payment would be $1000. So he would receive $44 in savings per month. All he would pay is the appraisal which is about $400.

$400 / $44 = 9

It would only take 9 months for him to recover his cost. After the 9 months, he would have monthly savings of $44 per month and reduction in interest over the life time of the loan.

Is it worth it?

I don’t know. It all depends on what he is trying to accomplish.

I will go back to my first question, “What are you trying to accomplish?”

Define your goals and we will help you find the solution to your goals.

If you like to discuss you situation with me or just going over some numbers, feel free to give me a ring at 512-919-0154.