No Cash Out Refinance

Changing an existing mortgage by selecting no cash out refinance could be a good tool for individuals who want to lower the current interest rate on the initial loan, reduce monthly payments or shorten the overall term of the existing contract. In essence, this means creating a new mortgage for an amount that is equal or less than the outstanding balance still owed on the initial contract. Sometimes this form of funding is referred to as rate and term refinance. Cash out refinancing, in contrast, means a person is changing an existing mortgage for more than the outstanding balance that is owed. This alternative is used when an individual also seeks to pocket some cash for other expenditures, such as paying off high interest credit card debts or even paying for a child's college related expenses.

On the surface, changing an existing mortgage by opting for a no cash out refinance plan may seem like a lucrative deal. Before pursuing this opportunity it would first be wise to clarify what the particular goals are in choosing this type of refinancing. A person should determine if the objective is to lower the interest on the loan, decrease the monthly mortgage payments or simply reduce the overall term of the loan, which in effect means paying less interest over the life of the contract and thereby building equity more quickly. Many lenders offer a variety of tools on their web sites for borrowers to determine the best options for refinancing. Searching for companies that offer the best deals is certainly sensible, but sometimes an individual's current lender may actually offer the greatest rates for existing customers.

Regardless of what type of refinancing a person selects and despite the reasons for considering a change in an existing mortgage, there is something that is far more valuable than saving a little bit of money in the short term or even over the next several years. The Bible instructs readers that pursuing wisdom and understanding is simply priceless and a treasure that should be sought above everything else in this life. God's Word says, "Receive my instruction, and not silver; and knowledge rather than choice gold. For wisdom is better than rubies; and all the things that may be desired are not to be compared to it" (Proverbs 8:10-11). Keep these Scriptures in mind when trying to determine if no cash out refinance should be sought or if the better choice would be to keep the current mortgage loan and find other ways to better manage and reduce debts.

After a person has made a decision to obtain no cash out refinance of an existing mortgage and the goals for that choice have been determined, the next factors for consideration are all the fees often associated with this type of funding. Since a new loan is being acquired, a borrower will end up essentially paying the same costs as were part of the initial mortgage. Expenses related to obtaining no cash out refinance may include fees for an attorney, appraisals, notary, and document preparation. Some lenders may require a portion of these charges be paid at the time of application. It would be prudent for a borrower to realistically weigh the costs associated with changing a current mortgage as compared to the potential up front or long term savings.

The overall expenditures related to no cash out refinance of an existing loan also may depend upon the points that are offered by a lender. Points are considered to be prepaid interest that is assessed by a lender at the closing on a loan. Each point is typically equal to 1 percent of the overall loan amount. On average, refinancing a mortgage could cost an individual between 3 to 6 percent of the entire amount that is borrowed. There are some lenders that do offer a no points loan, but borrowers must be aware that while the initial upfront money that is paid for this transaction will be lower, the trade off is that the monthly payment will often be higher.

Another factor for individuals to consider when deciding whether or not to choose no cash out refinance of their current loan is the potential loss of tax credits. As many homeowners know, one of the major benefits to owning a house is the tax breaks that are received since the interest associated with a mortgage is tax deductible. If a person opts to refinance for the purpose of reducing their interest rate they will in turn lose some of their tax benefits. As always, potential borrowers should shop around and conduct extensive research using the Internet in order to have an idea of the typical interest rates that are available from lenders and the fees that are common with no cash out refinance. Consumers should also be aware that some lenders charge a non-refundable application fee so if a person is turned down for the new loan, or changes their mind about refinancing, they will be out that amount of money.

Refinancing an existing mortgage can be a scary proposition for some individuals but consumers should find comfort in knowing that there are certain laws in place that protect borrowers. When speaking with a lender a person should keep in mind that the financial institution must provide in writing the costs and terms of the financing before the borrower is legally bound by the loan.


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