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About No Closing Cost Loans:
In reality, there is no such thing as a "No Closing Cost Loan." There are third party fees which are out of the control of both the mortgage broker and the lender that must be paid. Under a "No Closing Cost Loan" program the interest rate is increased slightly (usually about 1/4 point depending on the loan amount) and in return for the higher rate, part of, or all of, your closing costs are paid by the lender/broker. This can be useful for someone who is purchasing a home and has limited cash available. Also, if rates appear to be in a downward trend, or you anticipate refinancing in the next 3 years or so, this is a great alternative to paying closing costs out of your pocket. The typical increase in payments for a 30 year mortgage based on 1/4 point rate increase is about $17 per month for each $100,000 borrowed. That means that on a $250,000 loan your payment would increase by about $43 per month. Based on closing costs of $2,500 the break even point is about 58 months. If you refinance before 58 months you can come out ahead by paying a higher rate and having the lender/broker pay your closing costs for you. If you keep the loan longer than that, the cost will increase each month. The actual numbers will vary based on loan amount and current rates. |
