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Don’t Cannibalize Your Equity

Don’t Cannibalize your equity by paying closing costs. One of the biggest mistakes homeowners make is continually adding to their principal balance by accruing loan fees to Refinance every time an opportunity arises to lower their interest rate. With the average homeowner refiancing every three to five years, it’s no wonder mortgage balances are not reducing. Before they recoup the closing costs of their last mortgage, they Refinance again, resulting in an ever-increasing loan balance.

The solution to this dilemma is a no-cost loan. This is a loan that will have a slightly higher interest rate than a loan that has fees, but all of the closing costs incurred are paid by us, not the homewoner. That way, the principal balance of the new loan can start out the same as the principal balance of the loan being paid off. There is not any equity lost, allowing the homeowner to maintain their strategy of paying down their mortgage, while still enjoying a lowermortgage payment.

When comparing a mortgage option that has closing costs vs. a no-cost loan, the loan option with closing costs will have a higher mortgage balance to cover the closing costs incurred. If you take a higher loan amount at a lower interst rate, and compare that with a lower loan amount at a higher interest rate, the results can be astonishing. Because the no-cost option has a higher interest rate, a great portion of the payment will be tax deductable. on an after-tax basis, the breakeven point is typically much more than TEN years before the homeowner will have benefited by paying closing cost to obtain a lower rate.

As a Certified mortgage Advisor, my role is to analyze each of my client’s goals and objectives, and make recommendations as to the best solution for their situation. In most cases, I suggest the no-cost option. We have a program that compares and contrast different levels of closing costs vs. interest rate, and projects a breakeven point for each option. No-cost loans are available for home purchase loans as well as refinances. There are restrictions to no-cost loans; however, most homeowner’s loans will qualify (subject to credit, income and appraisal qualification).

To see if you would benefit from a no-cost loan, call and arrange a 15 minute mortgage review. I will review your overall mortgage, debt and equity situation, and tell you if a change can and should be made. As a trusted advisor to hundreds of families, you can be certain you will receive honest and professional advice. You can reach me by calling 810-501-7950, or by email at

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