No Cost Mortgage

A no cost mortgage is a loan where the lender pays the closing costs. Often the lender will charge a higher rate on the loan to offset the closing costs.

If you are considering a no cost mortgage you should ask for a Good Faith Estimate (GFE) to see if there are no costs at all or if there are just no costs from the lender.

You should definitley consider a second opinion and compare a GFE with closing costs to a GFE offering a "no closing cost loan" to see which loan makes sense now and for the long term.

No cost mortgages make more sense when you know that you will not be in your home for a very long time or when you know that you are going to have to refinance within a year or two. If you plan or intend on keeping your home for more than a couple of years and you don't intend to refinance your home mortgage loan then obtaining the lowest interest rate and payment and paying for your closing costs is usually the better option.

For a purchase money transaction, one can always negotiate with the seller to pay a portion of the closing costs. This option will give you you a lower interest rate than a lender funded no closing cost option.

A no cost mortgage usually always means a higher interest rate. If you plan on only being in your home a few years before moving, taking a higher interest rate with no out of pocket cost may be a wise decision. If you plan on living in your home for 5+ years, paying your closing costs and taking a lower rate may save you thousands over the life of your loan. Be sure to ask you mortgage broker which solution makes the most sense for you and your time frame.

No cost mortgages are marketed heavily by larger companies like Ditech, countrywide and quicken loans. Although the marketing would lead you to believe that it is a great loan product for the consumer they always fail to mention the higher interest rate the loan will have.

» DISCLAIMER: The information contained in this article on 'No Cost Mortgage' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.