Choosing a No-Cost Mortgage versus a Traditional Mortgage
Every homeowner wants to purchase a home with as little money as possible and keep their mortgage payments low; it makes perfect sense so which is advantageous, a no-cost mortgage or a traditional mortgage? Well, between me and you just because it says “no-cost” doesn’t mean it really won’t reach into your pockets.
Nationwide our mortgage rates have plummeted to record lows and homeowners know a good deal when they see it. Not wanting to dip into savings many are looking into a no cost mortgage refinance to take advantage of these outstanding rates. No cost mortgages are advantageous because no upfront costs are required. Of course these no cost deals can be initiated elsewhere but are most common in the refinancing industry. Homeowners seek out these no-cost mortgages because of the advertised no or low fees which actually ends up costing much more.
Generally, the homeowner avoids paying any upfront closing costs and fees but there are always hidden costs associated with this practice. A higher interest rate is expected so that the lender will still make a profit, so you really aren’t getting a no-cost mortgage.
Initially you may not pay any upfront costs but down the road you’ll pay more with this type of mortgage than you would a traditional mortgage. Typically with this type of no cost mortgage you’ll be offered:
No points but you pay the lender and third party fees
No lender fees
And the most common; no upfront cash but all the fees and additional costs are built in to the interest rate.
With traditional mortgages the homeowner or buyer is responsible for paying closing costs. This will include your fees associated with the purchase and will also include any escrow payments that must be made. Generally, a no-cost mortgage will not include your escrow fees such as pre-paid taxes and homeowner insurance and you’ll have to pay this outside of settlement. A traditional mortgage includes all associated costs with title transfer, property taxes and other expressed fees that accompany your mortgage payment.
There are many mortgage lenders who love the uneducated customers looking to save out of pocket money on a mortgage loan; they’ll say anything to get the business and add up bogus fees and costs to the mortgage interest rate. Ask questions before deciding upon your loan. You’ll be paying for this house for years and should investigate advantageous ways to save a bundle, now and in the future.
The best thing you can do is to shop around and compare lenders. Get quotes and make sure you notate when the quotes expire. It’s also a good idea to try and work out a deal with a preferred lender; many times they will meet or beat a good quote from their competitor.
