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How Negative Closing Costs Work

Get Paid To Refinance: How Negative Closing Costs WorkIf you want to save money on your home loan, you might be thinking about refinancing your mortgage. You might be able to replace your existing mortgage with a home loan that has a lower interest rate. Even a single point reduction in your interest rates could save you tens of thousands of dollars over the life of your loan. Before you refinance, be sure to ask about closing costs. Because you are replacing your existing home loan with a new one, you may incur some closing expenses. On the other hand, you could also have negative closing costs. In this case, you might get paid to refinance. How does this work? 

The Lender Credit Exceeds The Loan Costs

If you receive a lender credit that is greater than the value of the closing costs, then you could get paid to refinance your home loan. For example, your closing costs could be $2,000. Then, your lender credit could be $2,500. In this case, you would get paid $500 for refinancing your home loan. Why would you receive a lender credit, and how can this exceed your closing expenses?

How To Qualify For Lender Credits

You receive lender credits if you refinance to a lower rate that offers a lender credit. For example, at the original home loan closing, you might have paid points to get a lower interest rate. With lender credits, the lender is paying you to refinance. 

If you qualify for a lender credit, there are several ways you might receive this money. The money could be used to prepay your mortgage interest, it could be placed in an escrow account to cover your homeowners’ insurance or property taxes, or could be directly applied to the principle of your home loan, reducing the amount of money you owe.

Always Look At Closing Costs During The Refinance Process

There are a lot of moving parts if you decide to refinance your house. Even though it may sound complicated, it could save you tens of thousands of dollars while freeing up additional cash. If you have owned your home for several years, it might be time to refinance. Reach out to a professional to learn more. 

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