Whats the deal with “no closing cost” refinancing?
It is a scam, or rather, a marketing ploy. No one works for free and there are hard costs to outside vendors that always have to be paid. In order to avoid the borrower paying these charges the lender charges the borrower a higher than par rate and pays the costs (and their loan fee) with the Service Release premium that the lender pays for delivering the loan at a higher rate. If you read the very small print you will see the statement that specifies that borrowers who elect to pay the 3rd party fees may receive a lower interest rate as well as the one that says that some fees on the “no cost” refi may be charged up front but refunded to the borrower at closing. The object of the ad is to make the phone ring, which I am certain it does, but I’d be interested is finding out how many callers actually end up choosing the “no cost” refi at a higher rate and how many the lender is able to convert to a standard refi at the lower rate available.
