How Much Does a No-Cost Mortgage Cost?

Source: Informa Research Services

Free press. Fat-free. Free gift with purchase. It seems like anything that's "free" is harmless and generally, a good thing. People will jump at the opportunity for something that is sans cost. But should you be jumping for a no-cost mortgage loan?

So, what exactly is a "no-cost mortgage"?
A no-cost mortgage loan is a mortgage in which the upfront fees are paid by the lender at closing. These fees include many of the settlement costs, but keep in mind that there are some costs, such as prepaid taxes, or title charges, that cannot always be paid by the lender. Typically, the only fees that are waived are those that fall into the category of "lender fees."

How much does a no-cost mortgage cost?
A no-cost mortgage costs nothing out of pocket at closing. However, a no-cost mortgage may result in having a slightly higher interest rate. Nonetheless, the difference between the interest charged on a no-cost and regular mortgage loan tends to be very small. You should use the resources available to you, such as the Internet, to shop and find the best rates and fees.

Who would benefit from a no-cost mortgage?
Depending on your situation and personal finances, a no-cost mortgage may or may not be the right option for you. Some homebuyers may opt to use the cash they save to furnish their home or perhaps upgrade the conditions of their home. It may be advantageous to use the cash you save by not paying the upfront fees to get the mortgage loan to finance these purchases because it will be affected by a lower interest rate than many other loans, such as credit cards.

No cost mortgages are not for everyone. It is really a matter of preference. You need to weigh the importance of paying closing costs upfront against paying a slightly higher rate over the term of the mortgage loan.

Although there are protective measures in place, such as the Truth in Lending Act, regardless of which loan you choose, you should be sure to read the details contained in the fine print to ensure that you are truly getting (and paying) what you think you are. Additionally, one can use the Internet to research their available loan options, both traditional and no-cost.
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Another good article from the Washington Post - Mortgage Fees to Avoid