5 hot year-end home mortgage trends

Zero-cost refinances look tempting
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Mortgage rates have fallen so much since last year that it makes sense for a lot of homeowners to apply for zero-cost refinances.

The term "zero-cost refi" isn't completely accurate, because a refinance always carries fees. But with a zero-cost refi, the borrower accepts a higher rate in exchange for not having to pay fees out of pocket.

The final rate might be a quarter of a percentage point (or more) than the rate given to a borrower who pays the fees out of pocket.

How do you know you got a good deal on a zero-cost refi? Comparison shop, Green says.

"Make sure, when you do your comparison, that you specifically ask for a no-closing-cost mortgage," Green says. "It's the only way to compare rates, if you're comparing the same fees, too."

When a broker does it, this type of loan employs a controversial practice called a yield spread premium. (When a bank does it, it's called a servicing release premium.) The loan officer gets a commission for persuading the borrower to take a higher-rate loan.

Yield spread premiums are restricted under the Dodd-Frank financial reform law, but no-cost mortgages are likely to remain legal.




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