No Cost Loans!!

Yesterday morning, a tv ad caught my attention. 'America's Home Lender' was advertising 'No Cost' loans!

No administrative fee.
No processing fee.
No credit fee.
No title insurance fee.
No recording fee.
No appraisal fee.

This is incredible! This sounds too good to be true!

'No Cost' loans are a great product, but they aren't no cost. (If something sounds too good to be true, it is.)

Below, I'm going to explain how a 'No Cost' loan works.

Appraisal, processing, credit, title insurance, recording and other fees are paid out of a couple of potential sources.

1 - Equity. If the pay off for your current loan is $200,000 but your new loan amount is $207,000, can you guess where the cost of the loan is? You guessed it... EQUITY!
....That being said, if you don't have/want to bring in $7,000 in order to close your loan, this is a good deal, BUT it is not a true no cost loan!

2 - Interest Rate Premium. The higher the interest rate, the more the bank pays mortgage professionals. By raising the interest rate a point or two, there can be more than enough $$ to cover the costs of fees which make it possible to bring no money into closing! Once again, this is not a true no cost loan, BUT it could be the right move for someone who doesn't plan on staying in their home long term, doesn't have $$ to bring to closing or is willing to refinance again in a few years.

Folks, mortgages are expensive. Addictions to refinancing regularly quickly eat up all of your equity (and sanity). Get into a fixed rate mortgage, make an extra payment occasionally (after you put some reserves into your savings account) and give the market an opportunity to provide you with some equity!

Wishing you all a wealth of real estate finance knowledge!