Buy Now Refinance Later At No Cost Offer explained.
What is “Buy Now, Refinance Later At No Cost’ Deals
Buy Now, Refinance Later At No Cost deals are a type of mortgage promotion offered by some lenders. Under these deals, buyers agree to purchase a home using a mortgage at the current interest rate, with the understanding that they can refinance to a lower interest rate in the future at no cost.
Closing costs are the fees associated with buying or selling a home, and they can add up to thousands of dollars. Buy Now, Refinance Later deals typically waive all or most of the closing costs associated with the refinance, which can save borrowers a significant amount of money.
Buy Now Refinance Later At No Cost: How it works
- The buyer purchases a home with a mortgage at the current interest rate.
- The buyer has a set period of time after closing (typically 6-12 months) to refinance to a lower interest rate.
- The lender waives all or most of the closing costs associated with the refinance.
- Buyers can take advantage of lower interest rates in the future without having to pay closing costs again.
- Buyers can lock in a home at today’s prices, even if interest rates are higher than they would like.
- Buyers can save money on their monthly mortgage payments if they refinance to a lower interest rate.
- Buyers are locked into their current interest rate for the set period of time, even if rates fall below their current rate.
- Buyers may have to meet certain requirements to qualify for the refinance, such as having a good credit score and a certain amount of equity in their home.
- Buyers should carefully read the terms of the Buy Now, Refinance Later deal before signing, as there may be other restrictions or fees that apply.
Overall, Buy Now, Refinance Later deals can be a good option for buyers who are concerned about high interest rates and want to have the flexibility to refinance to a lower rate in the future. However, buyers should carefully consider the terms of the deal and make sure they understand all of the requirements before signing.
Are there any hidden pitfalls in the ‘Buy Now, Refinance Later At No Cost’ offers being extended by certain lenders?
In the past year, mortgage rates have surged, currently standing at 7.79% for a 30-year fixed-rate mortgage, according to Freddie Mac. As a result, many potential buyers have been priced out of the market, leading to a slowdown in the housing market’s competitiveness, compared to the highly competitive market of 2021 and 2022.
In response to these nearly 8% rates, lenders are now offering an enticing proposition: purchase the house now and refinance later, with no additional costs.
Typically, in a “buy now, refinance later at no cost” arrangement, buyers have the option to refinance their mortgage if interest rates decrease, all without incurring substantial closing costs. These costs averaged around $2,375 in 2021, as reported by Closing Corp, cited by The Wall Street Journal.
The specifics of this offer can vary significantly. Some lenders providing the “buy now, refinance later” option cover all the closing costs, while others might only waive their fees or include the costs in the loan.
However, despite the appealing nature of the offer, there are important considerations to bear in mind.
As Bradley Hilton, a financial planner in Atlanta, cautioned, “Nothing is free,” as some of these offers come with time limitations and short expiry dates. Failing to refinance within the specified timeframe could result in missing out on the deal and potentially having to cover the full closing costs out of pocket, as noted by Investopedia. Furthermore, if the lender’s credits lose their value after a year or two, it might render refinancing unfeasible, especially if interest rates fail to decrease within that period.
Rather than opting for a “refinance free” deal now, it may be more financially advantageous to secure the lowest available mortgage rate with no attached conditions and subsequently search for the most competitive refinancing deal, as suggested by Bankrate analyst Ted Rossman.
Furthermore, a “buy now, refinance later” arrangement doesn’t guarantee eligibility when it’s time to refinance. Laurie Goodman, a fellow at the Urban Institute think tank, explained to the WSJ that factors like deteriorating credit or a significant drop in the property’s value might prevent the planned refinancing.
It’s worth noting that certain lenders might incorporate unclear terms in the agreement, potentially leading to concealed fees or costs rolled into the loan. This can have long-term implications on interest payments, as reported by Business Insider.
Additionally, to take advantage of the “buy now, refinance later” deal, borrowers are often required to refinance with the same lender and may need to wait a minimum of six months to be eligible. These restrictions could limit a borrower’s ability to access more favorable rates elsewhere. Dan Richards, executive vice president of mortgage lender Flyhomes Mortgage, which introduced a “buy now, refinance for free later” product, emphasized that this approach aims to engage borrowers as long-term customers of the original lender.
So, the question arises: what’s the best course of action? According to Rossman’s recommendation in the WSJ, it’s prudent to focus on what you can comfortably afford at the time of purchase, rather than counting on future rate reductions, as unforeseen circumstances can disrupt plans.