'No-cost' refinancings aren't really free

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No matter how you cut it, refinancing is not free.

Mortgage lenders typically charge 3% of the balance to refinance your home loan.

You can avoid paying loan origination fees and other charges up front by opting for what's commonly called a "no-cost" refinancing.

But lenders have lots of other ways to collect that money.

One of the most popular options is to tack it onto the amount you're borrowing.

If, for example, you were refinancing an $150,000 balance from your home in a new loan, instead of paying the 3% (or $4,500) out of your pocket, the bank would make your total loan amount $154,500.

The problem with this route is that you would pay more than the original $4,500, thanks to the interest you'll be charged over the life of your loan.

Another option that mortgage lenders often pursue is to charge higher interest rates for no-cost refinancings.

You may find a bank that offers one rate for refinancing if you pay the fees up front. If you skip the fees, you could find yourself paying between one-half and one full percentage point more on your new mortgage.

This increases your monthly payments and reduces the benefits of refinancing to a less-costly home loan.

As mom always said, there is no such thing as a free lunch. And, in mortgage refinancing, there is really no such thing as a no-cost loan.

Whether you pay the fees to your lender up front, rolled into the new mortgage or in the form of higher interest rates over the course of your loan, you will still be paying for them, no matter what.

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