Home Lenders Offering Buy Now, Refinance for Free Later

As mortgage interest rates have reached their highest levels in two decades, lenders are coming up with new ways to encourage prospective homebuyers not to put off buying a house. One new program allows borrowers to buy now and refinance their homes later for free.

But the terms for these programs can vary by lender, so it's crucial for prospective homebuyers to research and consider all options before moving forward.

Home Lenders Hoping to Turn the Tide on Originations

The housing market experienced an unprecedented surge in 2021, causing home prices to increase at a shocking 18.8% clip annually. But as mortgage interest rates have skyrocketed in 2022, the homebuyer market has shrunk significantly.

Starting out the year at 3.11%, the average rate for a 30-year fixed-rate mortgage surpassed 7% for the first time in 20 years in October and November. As interest rates rose, so did monthly payments, with the national median payment reaching $2,012 in October, an all-time high. At the same time, existing-home sales fell a whopping 28.4% in October from a year ago as more prospective homebuyers have decided to wait for rates to come down again.

In response, mortgage lenders have created an incentive program where borrowers can buy a home now at current market rates, then refinance the home when interest rates go back down without needing to pay the standard closing costs, which can range from 2% to 5% of the loan amount.

Not All 'Buy Now, Refinance Later for Free' Programs Are Created Equal

Taking on a higher interest rate now to gain savings later during a refinance can be worth it for some homebuyers. But it's important to note that the terms for these programs can vary by lender, and they're not all free. Some lenders may pick and choose which costs to cover, while others may simply roll the closing costs into your refinance loan. That's not only not free, but it'll end up costing you more as you pay interest on the closing costs for the life of the loan.

Here are just a few examples of current offers:

• Flyhomes will soon launch a deal covering all refinance closing costs, including third-party fees.
• Guild Mortgage will waive lender fees only.
• Better Mortgage is offering up to $3,500 in lender credits.
• Amplify Credit Union offers a no-cost refinance, including no appraisal fees.

Keep in mind that these programs typically have an expiration date on when you can refinance to take advantage of the deal. If you don't refinance within the allotted timeframe, you'll miss out on the deal. And if interest rates haven't dropped significantly enough by then, you may end up needing to refinance again later and pay the full closing costs out of pocket.

If you can afford a higher monthly payment right now, one of these programs can be beneficial. Just be sure to read the fine print and compare offers from multiple lenders before you pull the trigger and apply.