Why Choose a No-cost Loan?

Lenders realize that borrowers may not necessarily want to pay or have the money upfront to close loans, so they came up with the no-cost option.  With the no-cost option, lenders include the cost of closing loans by slightly raising their interest rates. 


When clients come to me for refinancing, I ask them 1 fundamental question:  How long do they plan to live in the house?  Depending on their answer, I present 2 main loan options.

1. Pay nothing to close the loan, but the rate will be higher;
2. Pay some closing costs upfront to close the loan, but the rate will be lower.

For example, my clients would like to refinance a $415,000 loan.

• A 5/1 ARM no-cost loan may have a rate of 4.375%, with a monthly payment of $2072.03.
• A 5/1 ARM loan, with $3000 closing cost, may have a lower rate of 4.0%, with a monthly payment of $1981.27.
  • The savings is $90.76 a month by going with 4.0% loan.  However, because of the closing cost of $3000, it’ll take the clients almost 3 years to recoup this amount before they could enjoy the savings.
  • This may be a good option for clients who plan to stay in the house for longer periods of time.  However, interest rates may fall in the near future and the clients would likely refinance again.

In most cases, it is more advantageous to refinance by using the no-cost option.  Yes, you’ll be paying slightly more per month, but you also have the flexibility to refinance to a lower rate at anytime, without worrying about having to pay or whether you’ve recouped your previous closing costs...


I always present both no-cost and some-cost loans to my clients.  I tell them the pro’s and con’s of both cases and let them decide.  If asked, I tell which loan I’d choose, but the decision is ultimately theirs.

Why Refinance With A Mortgage Broker?

If a borrower walks into his local bank to look for a mortgage loan, the bank will not tell this potential customer that their competitor across the street has a slightly better rate.  The customer must do all the legwork if he wants to get the best rate.  Who has the time nowadays to do that?  This is where the mortgage broker can help.  The mortgage broker has visibility across all lenders so he can find the best rates.


As a mortgage broker, I only work with lenders with the best rates and the best closure record.  Lender JoeBob may say they have rock-bottom rates, but if JoeBob shows a consistent failure rate of funding when expected, I will steer my customers elsewhere.  My customers’ time and goodwill are the most important.  When I give a quote to my customers, I must be confident that I could close the loan.


Recently, a couple wanted to refinance their 30-yr fixed loan to another 30-yr fixed.  I asked them what their family plans are in the next 5 years.   They told me that their son will in college by then and their daughter will follow shortly.  I asked them if they could see themselves still living in the same house 5 years from now and they said maybe.  I then asked them about college savings for their children and if they could use a few thousands extra per year.  They said, “Of course!”. 


Rather than refinancing to another 30-yr fixed loan, I suggested to my clients to consider a 5/1 ARM.  A 5/1 ARM is essentially a 30-yr loan but the rate is only fixed for the first 5 years.  After 5 years, the interest rate could change, but the change has a lifetime cap and is usually adjusted twice annually based on a variety of indices.  And of course the borrower has the right to refinance anytime to a new loan should the right opportunity come along.


I then presented 2 loans to them:  the 30-yr fixed rate and payment versus the 5/1 ARM rate and payment.  There was no doubt in my mind that the best loan for them is the 5/1 ARM:  better rate, lower monthly payments and the flexibility to change to a new loan if a lower rate could be found in the near future.  My clients wisely chose the 5/1 ARM and their refinancing is scheduled to close next week.

No-Cost Mortgage Refinance

Are you paying more for your mortgage than you need to?  Please call for a no obligation review and perhaps I could help you refinance – at no cost to you!! 

Below are some recent no-cost mortgage refinance scenarios:

1.       Loan #1:  $200,000, 15-yr fixed, closed escrow December 2009

o   Was paying 4.750% but refinanced to  4.375% (4.375% APR)

o   Saving the borrowers $38.42 per month or $464.01 annually

o   Cost to the borrowers -> zero!

2.       Loan #2:  $352,000, 30-yr fixed, closed escrow December 2009

o   Was 4.875% but refinanced to 4.625 % (4.68% APR)

o   Saving the borrowers $53.04 per month or $636.48 annually

o   Cost to the borrowers -> nada!

3.       Loan #3:  $490,000, 5/1 ARM, escrow to close March 2010

o   Was 5.125% but refinanced to 4.375% (3.738% APR)

o   Will be saving the borrowers $221.49 per month, or $2657.88 annually

o   Cost to the borrowers -> zilch!

Please contact Anna Tseng (DRE 01781528), realtoga at gmail dot com, and let me show you how to save hundreds and perhaps thousands per year on your mortgage payments.