Is a "No-Cost" Loan Really "No-Cost?"
November 22, 2010
If you listen to the radio you have probably heard ads for "no-cost" loans, sometimes called "zero-cost" loans. These loans purportedly require no cash outlay from the borrower. Typically the lender adds approximately half a percentage point to the interests rate being charged.
Since the up front costs of obtaining a loan can be as much as 3% of the loan balance, these "no-cost" loans can be tempting to a borrower.
In a C.A.R. newsletter article that quotes a piece in the New York times newspaper the following description of "no-cost" loans was cited.
One of the primary differences between a "no-cost" loan and similar loans is that "no-cost" loans do not tack on closing costs to the balance, but instead increase the rate.
With "no-cost" loans, third party fees including appraisal, credit report, title insurance, recording, and the use of a mortgage broker are paid by the lender. The fees, including the amount the broker is being paid, are disclosed on the closing statement."
Home buyers who bypass a broker and work directly with a lender may encounter less transparency, as loan officers are not required to disclose the amount the bank is making on the loan."
Borrowers weighing their loan options are advised to use a mortgage calculator to compare the costs for a conventional loan compared with a no-cost" loan. The Federal Reserve provides an amortization calculator n its Web site at http://www.federalreserve.gov/
If you listen to the radio you have probably heard ads for "no-cost" loans, sometimes called "zero-cost" loans. These loans purportedly require no cash outlay from the borrower. Typically the lender adds approximately half a percentage point to the interests rate being charged.
Since the up front costs of obtaining a loan can be as much as 3% of the loan balance, these "no-cost" loans can be tempting to a borrower.
In a C.A.R. newsletter article that quotes a piece in the New York times newspaper the following description of "no-cost" loans was cited.
One of the primary differences between a "no-cost" loan and similar loans is that "no-cost" loans do not tack on closing costs to the balance, but instead increase the rate.
With "no-cost" loans, third party fees including appraisal, credit report, title insurance, recording, and the use of a mortgage broker are paid by the lender. The fees, including the amount the broker is being paid, are disclosed on the closing statement."
Home buyers who bypass a broker and work directly with a lender may encounter less transparency, as loan officers are not required to disclose the amount the bank is making on the loan."
Borrowers weighing their loan options are advised to use a mortgage calculator to compare the costs for a conventional loan compared with a no-cost" loan. The Federal Reserve provides an amortization calculator n its Web site at http://www.federalreserve.gov/
posted by shirley harry at 8:23 AM
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