No Closing Cost Home Equity Loan-Is It Worth It?

What is a no closing cost home equity loan, and is it worth applying for? Basically, it simply means that you are taking out a loan that will be used to pay off your current financing, whether it be credit cards, a mortgage, or some other type of debt. As the name suggests, you are using the equity in your home as collateral in case you default, which is why often the rate will be cheaper with a no closing cost home refinance loan.

No Closing Cost Home Equity Loans Aren’t Really Free

However, the problem is that taking out financing always costs the company money. This is because they have to look into your credit, and also figure out how much your house is worth. Finally, they must search the title to be sure there is no damage to the home.

There are plenty of other things as well that cost the company money when giving out financing, and this is usually all charged upfront before the loan starts. That is what the term “closing costs” refers to, which is a bit misleading because these expenses are generally charged upfront. These expenses can get very high, and in many cases you have to pay $1000 or greater before you even see the financing.

The Catch

So can you get a no closing cost home loan? You can, but there is a catch-the interest rate is going to be higher. After all, you are asking the company to eat these expenses, instead of you. They are obviously going to charge you more for this, and it will come in the form of higher monthly payments.

Therefore, even though you save money upfront with a no cost home equity loan, you are going to pay for it over the long haul. In many instances you end up losing money over the course of the loan. This makes sense, because the company would obviously not offer this option if they could just have you pay for the expenses yourself.

So should you get a no closing cost home equity loan? You simply have to do the math, and determine if the new interest rate is going to be greater than what you are paying now. Even if it is still lower, make sure you multiply it out and figure out how much you are going to pay for the whole life of the loan. In many cases that number is greater than what you are paying with your current financing, even if the monthly rate is a bit lower. In most instances, a no closing cost home equity loan will not be worth it.