Is a mortgage with no closing costs right for you?

Source: Yahoo Finance

 A mortgage isn't free -- there are fees associated with getting the loan. Those closing costs usually total thousands of dollars. Besides writing a check to pay those fees at the closing table, there's another way to pay them when you refinance your mortgage: by adding them to the loan amount. The result is called a no-closing-cost refinance. Many lenders offer them. However, you'll probably have to accept a higher interest rate over the life of the loan.

 Making sense of the story: No-closing-cost mortgages are attractive to borrowers who don't have the cash to pay fees upfront. Waiving the closing costs may be the ticket to getting a mortgage for a new home or a refinance. If you don't plan to stay in your home for more than five years, a no-closing-cost mortgage also makes sense. With a traditional mortgage, it could take more than five years to recoup the closing costs. The slightly higher mortgage rate associated with a no-closing-cost mortgage is still likely to be less expensive over five years than what you would pay upfront in closing costs. Paying a slightly higher interest rate to forgo closing costs may also make sense if you need the cash to do renovations on your home. If you plan to stay in your home more than five years, then a no-closing-cost loan likely will end up costing you more than a loan with closing costs. That's true whether you're taking out a mortgage for a new purchase or refinancing an existing loan. Typically, you'll break even on your closing costs in a few years. Going with a no-closing-cost loan saddles you with a higher interest rate over the rest of the home loan. That could end up costing you a lot more than the upfront fees if you keep the mortgage for a long time.

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