Home Mortgages: Does a No-closing-cost Loan Make Sense for You?

I have heard a number of radio ads and have seen many newspaper ads offering "no closing cost" home mortgages. These ads will tell you that you can get a new mortgage or refinance your existing mortgage at absolutely with absolutely no closing costs.. There are no points, no charges for an appraisal, no charge for title insurance, no costs, period.

On the face of it, this sounds like a great deal and no-cost mortgages are especially popular with people who are refinancing an existing mortgage.

How does this work? Normally, a 30-year, fixed-rate mortgage, would have closing costs in the neighborhood of $2,000 to $3,000 or even more, depending on whether or not you pay points upfront. In fact, we talked to one mortgage broker two weeks ago about a mortgage on an investment property we own in another state and the closing costs were quoted as $7,000 ? outrageous but at least not typical.

You've probably heard the old adage, "there is no such thing as a free lunch," and these no-cost mortgages are yet another testimonial to the truth of this.

The way that no closing cost mortgages work is the lender gives the mortgage broker a rebate at closing which the broker then uses to to pay the settlement costs. The way the lender gets its money back is by charging a higher interest rate. For example, for a $230,000, 30-year fixed rate mortgage with no upfront fees, your interest rate would most likely be a least 0.35% higher that if you paid one point and the customary closing costs.

Here's an example of what this means. As of this writing, there were mortgages available at 5.250 %, plus one point. As you probably know, one point equals one percent of the mortgage so one point on a $150,000 mortgage would be $1,500.

The monthly payment fo this loan, excluding taxes and insurance is $826.00. The closing costs would be $1,500 plus the normal settlement costs of, say, $1,500,A for a total of $3,000.

Let's compare this with a no-cost mortgage. Assuming the interest rate is 0.35% higher as quoted earlier, the interest rate on a 30-year, fixed-rate mortgage would be 5.725%, yielding a monthly payment of $872.98 or about $46.00 per month vs. the loan where you would pay one point and the normal settlement costs.

Given a savings of $46.00 per month, it would take you about 65 months ? or 5.5 years to make up for the $3,000 you paid in closing costs. This means that you need to determine how long you will stay in that house before deciding on a mortgage loan or a refi. If you intend to stay in that home and not refinance your mortgage for more than six years, it might make sense for you to pay the point and the normal settlement costs. On the other hand, if you believe you will sell that house or refinance it in less than five years, a no-cost mortgage might be better.

Just make sure you look at all the various alternatives and their long-term costs before you leap into a new mortgage.

For FREE help with debt and credit, subscribe today to Douglas Hanna's free email newsletter "8 Simple Steps to Debt Relief" at http://www.all-in-one-info.com

---

Finding the Best Mortgage Lender Online

Finding the best mortgage lender online is simply a matter... Read More

What is a Flexible Mortgage?

'Flexible mortgage' is a term that's used a lot, but... Read More

Lesser Known Facts About Home Equity Loans

Refinancing your debt via a home equity loan shifts your... Read More

Stop Foreclosure - 7 Tips to Save Your Home

Faced with the threat of a foreclosure on their home,... Read More

Mortgage Loans For People With Adverse Credit - How Much Should You Borrow

"How much should you borrow?" is a question people with... Read More

The Right Home Loan - Floating or Fixed Rate Loan

Choosing a home loan has never been tougher. Yes, with... Read More

Home Equity Loans 101

A secured home loan differs from an unsecured loan in... Read More

Option ARM ? The World?s Most Dangerous Mortgage

Home prices have reached record levels, and in many parts... Read More

The Best Tactics for Getting a Quick Homeowner Loan

Trying to find a quick homeowner loan can seem difficult... Read More

Sub-Prime Mortgage Loans - Things You Should Know About Sub-Prime Mortgages

Sub-prime mortgages are not that much different from average mortgages.... Read More

Buying a Home? Dont Get Saddled with Two Mortgage Payments

I have a lot of friends and family who are... Read More

Your Mortgage Rate Compare and Save

When trying to obtain the best mortgage rate compare offers... Read More

Buy a Home With a Government Grant? Avoid this Scam

If you watch enough late night television, you'll see advertisements... Read More

Home Equity Loan ? Beware of the lingering lien!

A problem that often arises when people try to refinance... Read More

Guide to Mortgages

A mortgage is a loan that is guaranteed by a... Read More

The Top 5 Things You Must Know Before Applying for a Mortgage

You've been thinking about buying your own home for quite... Read More

Bankers Dont Want You to Know That You Pay for Your No Cost Home Loan Forever

With mortgage rates continuing on a downward trend, the competition... Read More

Bad Credit Home Equity Loans

A home equity loan allows you to borrow against the... Read More

Home Equity ? Is it Time to Cash Out and Move?

During the last five years, home prices have increased nationwide.... Read More

Mortgage Cycling May Be Your Best Bet For Equity Buildup and Investment Real Estate

Mortgage cycling is a system that relies on solid budgeting,... Read More

Refinancing Your Home Mortgage - Get Up To 125% Cash From Your Homes Value

With the low interest rates being offered by lenders today,... Read More

Money Smart Homeowners Use this Mortgage Strategy Every Time

There are currently more than 50 million home mortgages in... Read More

A Home Equity Loan - What You Should Know?

Asking yourself, "Is a home equity loan right for me?"... Read More

Home Loans and Mortgages ? Time to Consolidate Loans?

Home equity loans and lines of credit are useful tools... Read More

Home Equity Loans Can Provide Cash in a Hurry

Think About the Long Term. Estimate how long you expect... Read More

Sub-Prime Mortgage Company - 4 Signs of a Predatory Sub-Prime Lender

If you have bad credit and are looking to get... Read More

Thinking About Refinancing Your Loan?

Refinancing your home or property is a big decision that... Read More

First Time Home Buyer Loans Made Easy

When it comes to firsttime home buyer loans, a little... Read More

Zero Down Mortgage Loans - Is 100% Financing a Good Idea and Can You Get Approved?

Are you wondering if you can get approved for a... Read More

How to Secure the Best Mortgage Deal and Save Yourself Thousands in Interest

When you consider that the average home owner will pay... Read More

Homeowner Loans ? Drawing Lessons of the Past

Loans are not of a recent origin. People used to... Read More

Subprime Mortgage Lenders - Helpful Tips When Getting a Subprime Mortgage Loan

If you have bad credit history, no down payment or... Read More

Mortgage Calculator ? How to Calculate Your Monthly Mortgage Payment

Just starting to shop for a new home? Do you... Read More