Everyone has seen the ads and probably wondered how some mortgage lenders offer no fee mortgage loans while others cannot. Check in with reality and you'll find there is not such creature as a no-fee mortgage loan. Mortgage lenders claiming to offer no-fee mortgages are misleading homeowners; here are several tips to help you avoid being taken advantage of with "no-fee" mortgage refinancing.
Mortgage lenders often mislead homeowners with "no-fee" mortgages by referring to their own fees, and not third party charges. The lender may have a mortgage program without fees, but the fees they are talking about are usually junk fees and have nothing to do with your settlement charges. These offers are usually footnoted with tiny print that reads: "No Lender Fees, other fees will apply." You might say to yourself, no fee mortgages that eliminate junk fees are a good thing; however, mortgage lenders make up for the lack of fees by inflating your mortgage interest rate.
A true no cost mortgage would be one where you were not required to pay for anything. No appraisal, title insurance, credit checks, attorney fees, survey, or any of the dozen or so charges found on your settlement statement. There are a lot of third parties involved with the settlement of your mortgage and someone has to pay these people; one way or another it's going to be you. Usually no-cost mortgages are such that the lender pays some of these charges in exchange for raising your interest rate.
If you're considering a no cost mortgage like the one Bank of America is currently offering, run the numbers first. Look at the sum of your closing costs, say $1,500 and divide this by the amount of your mortgage. Suppose you were borrowing $200,000: $1,500 / $200,000 = .0075 or .75 percent. This is almost the equivalent of paying one "discount point" to lower your interest rate by .25%. A "no fee mortgage" is similar to the lender paying the point for you which woul d raise your interest rate by .25%.
You've agreed to pay a higher mortgage rate in exchange for not paying your closing costs. Is this really a no-fee mortgage? Nope, it's a higher cost that you'll pay each and every month with a higher mortgage rate. There are no free lunches when it comes to your mortgage loan: you always pay one way or another.
You can learn more about your mortgage options, including costly mistakes to avoid with a free video tutorial.
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Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Mortgage Refinancing - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.
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