However, the term can be a
somewhat misleading.
Here are the gory realities about "No Cost / No Fee"
mortgages and loans.
There are certain services required
to be performed on ALL mortgage home loans.
They include but are not limited to appraisal in some cases, title search
and title insurance services,
escrow or attorney services, recording of documents, closing agents, preparation of loan documents,
originating and processing of the loan file and so forth. We must go on
the assumption that none
of these service providers perform these services for free. It should be
noted here that no matter how these fees get paid, it's the borrower that
really does pay for them in the end. The funds to pay these service
providers can be paid by one of a few methods.
1) Take a market interest rate and finance the fees into the loan amount on
refinances.
On purchases, 103 and 107% LTV programs are designed to afford the
borrower funds to cover these.
2) Pay cash at closing for any applicable fees. (Seller may contribute on
purchases).
3) Accept a slightly higher interest rate and pay for some or all of the fees involved
with the rebate the lender gives in exchange for accepting a higher than
market rate. THUS... A "NO COST" loan.
No cost really???
By taking these loans you have a higher
interest rate thus a higher monthly payment. All no cost no fee loans work
this way. Don't let anyone try to fool you. There are circumstances where a "no
cost" plan is appropriate. If you do plan on keeping it for less
than a few years on average, even with the higher interest rate and payment
you could still save money
over the fees. If you plan on keeping the home loan for a longer term,
with these plans you will usually pay MORE over time due to higher payments than if you
had just financed in or paid your customary fees at the start and enjoy
the lower
rate long term.
The true story is nothing is free. All the
hype about no cost loans you hear on the internet,
TV and radio never tell the whole story. I do.
