Pros, cons of a no-cost refi

In today's market, paying points may be wiser

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The current refinance boom has focused attention on no-cost mortgages -- henceforth NCMs -- which have attractive features to refinancing borrowers. NCMs help borrowers avoid being overcharged, and they eliminate most of the uncertainty involved in determining whether a refinance will pay. On the other hand, the price of NCMs -- as measured by the interest-rate increase borrowers must pay to avoid refinance costs -- is unusually high in the current market. The challenge is to obtain the benefits of NCMs without paying an excessive price for them. An NCM is a mortgage on which the lender pays the borrower's settlement costs, with certain exceptions. The lender won't pay your tax escrows, homeowner's insurance or transaction taxes if there are any. You will also be stuck with paying interest on two loans for a few overlapping days. All other costs, including the mortgage broker's fee if there is one, are paid by the lender. Don't confuse no-cost with no-cash. No-cash means th...