Posted on: 25th Jan, 2007 08:21 am
i am in the market for a refinance. i hear all these advertisements on how mortgages are able to pay part of the closing cost or the borrow (such as myself) will not have to pay for any closing cost at all. how is this done and where do they get the money to do this? do they just take it from my refinance? also, how do mortgage companies are able to provide no fees to the borrow? i\\\'m kind of weary about this and think it is some kind of scam. two examples countrywide and lending tree, where they pay for the closing cost.
thank you all in advance.
thank you all in advance.
As to my knowledge many of the no cost mortgages just do not completely eliminate all the involved costs. These are turned into cost payments over a period of time from being paid upfront.
Thank you Larry. I'm currently educating myself on this whole mortgage thing. What does it mean by "cost payments over a period of time from being paid upfront"? If this paid by the borrower?
"What does it mean by "cost payments over a period of time from being paid upfront"? If this paid by the borrower?"
It means that instead of the total payment towards the expenses asked to be paid at the time of closing, these will be included as part of your loan.
It means that instead of the total payment towards the expenses asked to be paid at the time of closing, these will be included as part of your loan.
Thank you. How about if you're purchasing a new home and builders provide a $10,000 in closing cost. Where do they get the money to pay for the closing cost?
Hi,
Such an offer is mostly offered by a builder when the buyer selects a lender for his loan referenced by the builder.
You will then find that the rates offered by this particular lender will be higher than what you can get if you approach and select on your own or the fees will be higher. The down payment assistance gets covered up by the increased rate and expenses.
David
Such an offer is mostly offered by a builder when the buyer selects a lender for his loan referenced by the builder.
You will then find that the rates offered by this particular lender will be higher than what you can get if you approach and select on your own or the fees will be higher. The down payment assistance gets covered up by the increased rate and expenses.
David
Quite frankly, no lender or builder would like to offer any discounted offer making a loss. So it is a fact that whenever you see lender is offering a very substantial reduction in price, the cost has been included somewhere else. You will have to gain more knowledge about the actual division of all costs that are normally charged and evaluate where you are making overpayment which negates the costs on other items for the lender.
Here is something that I know of in regards to your question and you are on the right track. There are very few loans that have no closing costs Sometimes those lenders may not charge application fees, agree to pay the appraisal and title fees, but they may increase the interest rate in return and the borrower will have no idea about the increased interest rate. The lenders can also roll the costs into the amount of your loan and may even do both (roll the costs into the loan amount and increase the interest rate). So, because you're not paying costs up front, it's called a "no closing cost" loan. So even though there are minimal out of pocket costs, it's not really a low to cost-free loan.
Hi Refi and all,
No-cost refinance is a program with a high interest rate that when you pay the closing costs yourself. It often happens that the lender charges a specific rate of interest and offers a rebate on it. For example, on a 30 year mortgage offered at 7%, the lender may offer you a rebate of 1.4%. There is every possibility that if the 1.4% rebate covered the closing costs, then the no-cost rate is 7%.
In other words, lenders say it is a no-cost loan but actually the borrower pays the closing cost in the form of a high rate of interest.
If you expect to leave away the property within a few years, then the no-cost deal is not a bad choice. But then if you wish to stay longer, better avoid the no-cost. This is because the high rate will make you pay a lump sum interest every year and the longer the time period, the more you pay. And, this goes on even when the closing costs of the no-cost loan have been covered through the high payments.
You may find lenders providing offers that require zero fees, no points and no cash. No cash offers are such that the lender pays the loan costs but takes it from you by increasing the loan amount. In fact, a true no-cost loan is one for which the lender pays closing costs on your behalf without any increase in the amount you borrow.
Hope this information is going to help you.
Thanks,
Caron.
No-cost refinance is a program with a high interest rate that when you pay the closing costs yourself. It often happens that the lender charges a specific rate of interest and offers a rebate on it. For example, on a 30 year mortgage offered at 7%, the lender may offer you a rebate of 1.4%. There is every possibility that if the 1.4% rebate covered the closing costs, then the no-cost rate is 7%.
In other words, lenders say it is a no-cost loan but actually the borrower pays the closing cost in the form of a high rate of interest.
If you expect to leave away the property within a few years, then the no-cost deal is not a bad choice. But then if you wish to stay longer, better avoid the no-cost. This is because the high rate will make you pay a lump sum interest every year and the longer the time period, the more you pay. And, this goes on even when the closing costs of the no-cost loan have been covered through the high payments.
You may find lenders providing offers that require zero fees, no points and no cash. No cash offers are such that the lender pays the loan costs but takes it from you by increasing the loan amount. In fact, a true no-cost loan is one for which the lender pays closing costs on your behalf without any increase in the amount you borrow.
Hope this information is going to help you.
Thanks,
Caron.
Thanks Caron. That clears it up. I do have another question regarding your last sentence.
"In fact, a true no-cost loan is one for which the lender pays closing costs on your behalf without any increase in the amount you borrow."
Is there such a loan program?
"In fact, a true no-cost loan is one for which the lender pays closing costs on your behalf without any increase in the amount you borrow."
Is there such a loan program?
Refi,
Say you have a loan with a balance of $100,000 currently at 8%. In GENERAL terms here are your options.
A lender makes you a new loan at 6.50% with $3,000 in costs. At a rate of 6.50% that is a normal expectation of profit for the lender. You can handle the $3,000 in costs one of three ways:
1) You add the $3,000 to your current loan balance making a new loan of $103,000 at 6.50%
2) You pay the $3,000 out of your pocket and only borrow $100,000 in your new loan at 6.50%
3) You accept a higher rate of interest, say 7.50% At this rate, the lender is making more than a normal amount of profit and they use that extra profit to pay for your closing costs. Therefore at 7.50%, there are $0 costs. Obviously you are paying a higher rate of interest.
So option one basically means the $3,000 in costs are not "out-of-pocket" but are instead financed over the term of the loan. Option 2 means you paid the $3,000 "out-of-pocket" and thus did NOT incur new debt by refinancing. Option 3 means you refinanced at a lower rate, with no costs, but accepted a higher than market interest rate.
Now, as per your last question and Caron's e-mail. There ARE lenders who will refinance your current loan at a market rate and without some or all of the costs. Who?
1) perhaps your current lender. Instead of seeing you become another company's client, they may offer you a "streamlined" way of refinancing your loan.
2) perhaps another lender you already do business with. If your bank account is with another lender, or you have a financial planner with a company who also offers mortgages, they may want to give you a loan with less or no costs just to expand the business relationship with you.
Essentially, what everyone is saying is true. There are no free lunches without the chef getting "something" in return. That something might be a higher interest rate today, the promise of future business with you later, avoiding the expense with having you leave and take your business elsewhere, etc.
good luck.
Say you have a loan with a balance of $100,000 currently at 8%. In GENERAL terms here are your options.
A lender makes you a new loan at 6.50% with $3,000 in costs. At a rate of 6.50% that is a normal expectation of profit for the lender. You can handle the $3,000 in costs one of three ways:
1) You add the $3,000 to your current loan balance making a new loan of $103,000 at 6.50%
2) You pay the $3,000 out of your pocket and only borrow $100,000 in your new loan at 6.50%
3) You accept a higher rate of interest, say 7.50% At this rate, the lender is making more than a normal amount of profit and they use that extra profit to pay for your closing costs. Therefore at 7.50%, there are $0 costs. Obviously you are paying a higher rate of interest.
So option one basically means the $3,000 in costs are not "out-of-pocket" but are instead financed over the term of the loan. Option 2 means you paid the $3,000 "out-of-pocket" and thus did NOT incur new debt by refinancing. Option 3 means you refinanced at a lower rate, with no costs, but accepted a higher than market interest rate.
Now, as per your last question and Caron's e-mail. There ARE lenders who will refinance your current loan at a market rate and without some or all of the costs. Who?
1) perhaps your current lender. Instead of seeing you become another company's client, they may offer you a "streamlined" way of refinancing your loan.
2) perhaps another lender you already do business with. If your bank account is with another lender, or you have a financial planner with a company who also offers mortgages, they may want to give you a loan with less or no costs just to expand the business relationship with you.
Essentially, what everyone is saying is true. There are no free lunches without the chef getting "something" in return. That something might be a higher interest rate today, the promise of future business with you later, avoiding the expense with having you leave and take your business elsewhere, etc.
good luck.
Hi Refi,
Welcome back.
I hope Ken has nicely answered it all. Actually a true no-cost loan is rare. After all, if the industry thinks about the benefits of borrowers, there should be something good for lenders too.
Refi, even if a lender can charge slightly higher rate in return of paying for your closing costs, he can surely make up for the higher costs by providing excellent servicing of the loan. Also, he can keep in touch with customers and take care of all the things that will make his customers comfortably pay off the loan.
I am not really speaking in favor of anyone but just saying that the there are good people in this industry who undoubtedly may think about their profits. But at the same time they also care for the benfit of the borrowers.
Thanks,
Caron.
Welcome back.
I hope Ken has nicely answered it all. Actually a true no-cost loan is rare. After all, if the industry thinks about the benefits of borrowers, there should be something good for lenders too.
Refi, even if a lender can charge slightly higher rate in return of paying for your closing costs, he can surely make up for the higher costs by providing excellent servicing of the loan. Also, he can keep in touch with customers and take care of all the things that will make his customers comfortably pay off the loan.
I am not really speaking in favor of anyone but just saying that the there are good people in this industry who undoubtedly may think about their profits. But at the same time they also care for the benfit of the borrowers.
Thanks,
Caron.