Bankers Don't Want You to Know That You Pay for Your No Cost
Home Loan Forever
With mortgage rates continuing on a downward trend, the
competition in the business is fierce. A day never passes that I
don't hear some crazy advertisement about a new loan program that
XYZ mortgage company has and no one else offers. One of the
oldest programs remains steadfast in both its high profile and
its duplicity. This program is the No Cost Home Loan -- the one
bankers say is free, but you actually pay for as long as you have
The no closing cost home loan is virtually everywhere. It is
advertised in the mail, on radio and on TV all the time. "Hey,
refinance your loan today, and there will be no closing costs,"
the ads scream. Wow, a free loan. Imagine the money you'll save.
So, if you are in the market for a refinance loan or home equity
line, which you probably should be, with rates at all-time lows,
you might consider running to XYZ mortgage company, who is now
offering free mortgage loans.
Just be careful you don't go bankerupt, along the way.
Remember, the old cliché, Nothing in life is free, because it
makes a lot of sense. You actually can get a mortgage with little
or no closing costs. What bankers don't tell you (one of their
great secrets) is that you pay a higher interest rate than you
really qualify for, when you get your loan for "free." So, you
might save $2,000 or $3,000 in closing costs, but your monthly
payment could be $100 to $300 higher than it would have been if
you had actually paid the costs.
Imagine taking this loan and saving $2,000 in total closing
costs. Perhaps you borrow $200,000. Now, if you simply pay all
the costs and tell the banker you want the best rate available,
let's say it is 6% for this example, you would have a monthly
payment of $1,199. Now, let's assume the Wiley banker convinces
you to pay no closing costs and take an interest rate of 7%. He
might say, "Now, your interest rate will be a bit higher, but
you'll save $2,000 in closing costs." Sounds great, you might
What he doesn't do, though, is spell out the difference in the
6% rate you could qualify for, versus the 7% rate you choose to
take for your "free" loan. If you borrow $200,000 at 7% interest,
your monthly payment is $1,330. This is $131.00 more each month
than you will pay on the same loan at 6% interest.
If you choose to pay the closing costs and save $131.00
monthly, it will take you 15 months to get your $2,000 in closing
costs back. Now, if you keep this loan for five years beyond that
first 15 months, you will save an additional $7,860 at the 6%
interest rate. If you listen to the crafty banker, selling the No
Cost Loan, you'll allow nearly eight thousand dollars to drift
right up your home's chimney.
Unless the difference in the interest rate on your no closing
cost loan and the loan with costs is a tiny amount, say .125%,
you are almost always better off paying the costs. Be sure to ask
what the difference in the rates is. Then learn exactly what the
total closing costs will be. Calculate the difference in the two
monthly payments (one with closing costs and one without). If
that amount will pay back your closing costs in two years or
less, and you intend to remain in your loan for at least five
years, pay the costs and take the better rate.
Use this method, and you'll never go wrong.
Mark Barnes is author of the wealth-building system, Winning
the Mortgage Game and other investment real estate books. He is
also a suspense novelist, and his new novel, The League, will
thrill both suspense and sports fans. Learn about Mark's
wealth-building system and get his free home loan course at
Learn more about The League and read an excerpt at http://www.sportsnovels.com
MORE RESOURCES updated Wed. November / 14 / 2018
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CUNA News (press release)
'Flat' mortgage market aheadCUNA News (press release)This year is turning out like most people predicted in the mortgage arena. Rising interest rates have significantly hampered the mortgage refinance market. The growth of the purchase market can only be as great as the inventory of available homes.
How Credible worksCredible News (blog)It's quick and painless. Tell us a little bit about you and your home to get accurate prequalified rates without impacting your credit score. 2. Compare rates from multiple lenders. View the interest rate and cost breakdown of each loan to choose the ...and more »
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