Some lenders have a program that offers no additional costs and out-of-pocket expenses when you secure a mortgage. This is known as the No-Cost Loan in which all closing costs (including appraisal, title, legitimacy incurred, and underwriting) are settled in return for a greater mortgage rate.
While this model is by no means a new concept, it’s still something that property buyers need to understand so they can have more options when it comes to their finances.
What is a No-Cost Mortgage?
From a video excerpt from citycreekmortgage.com, the experts explain that in a No-Cost Loan, the lender will shoulder all the closing fees in exchange for a higher interest rate. This is how they make up for the missing costs that you would typically have to pay upfront. It’s a straightforward trade of saving cash at closing, but paying more yield over the life of your loan. This is an excellent program for borrowers who currently don’t have the required funds to cover closing costs.
Take this scenario: you can qualify for a $225,000 mortgage with an interest rate of 6% and $3,500 in closing dues. The No-Cost Loan gives you the option of not paying the $3,500 upfront in exchange for paying 6.5% or higher yield. You will be making higher monthly or annual payments when you choose this program.
Should You Consider This Option?
Figure out what you intend to do with the property and the mortgage. If you often refinance or you plan on moving to a bigger, more expensive home, spending your cash to get a lower interest rate may be a losing endeavor. In this case, you might be better off with a No-Cost Loan. After all, there’s no point in having a lower interest if you’re only going to sell your property a few months or years later.
When it comes to your finances, don’t be afraid to negotiate. Tell your lender that you want a no-cost option and ask for their best rates. You may be surprised at the amount of money you can save.