"I expect to stay in my house a long time and don't want to pay the high rate required on a no-cost mortgage, yet I'm strapped for cash. Can I pay the settlement costs but borrow a larger amount to cover them? Would this reduce the benefit from refinancing?"

Lenders ordinarily will allow you to fold the settlement costs into the loan amount on a refinancing without classifying it as "cash-out". For example, if the balance on your old loan is $100,000 and settlement costs including the lender's fees are $3,750, the new loan could be for $103,750.  A loan larger than that would be a cash-out with a higher price.

Calculator 3a, Refinancing One FRM Into Another, shows the net gain from refinancing if the borrower exercises a financing option, or if she doesn't. Those who use it will find that it reduces the gains from refinancing, extending the break-even period. This is largely because the borrower must pay interest on the costs at the mortgage rate.

Financing the costs, furthermore, can flip the loan amount above 80% of property value, which triggers mortgage insurance. The calculator automatically factors mortgage insurance into the cost calculation, if it arises.

Copyright Jack Guttentag 2007