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  • NO CLOSING COSTS LOANS: Are They A Good or Bad Idea? YOU DECIDE after reading this...

    One of the most confusing areas for consumers in a mortgage loan transaction are closing costs. Here I'll explain the advantages and disadvantages of the highly advertised "no closing costs", "zero cost" or "low cost " mortgage loans.

    First and foremost, there is no such thing as No Closing Costs!


    Everyone knows there are closing costs associated with getting a mortgage loan; appraisal, credit reports, state taxes, county recording fees, title companies fees, lender fees, escrows, and more. Someone has to pay these closing costs and fees, and it is always YOU.

    The various ways of how you can pay closing costs them is what this article tries to explain.

    Homeowners need to understand that in a no lender fee or no closing cost mortgage loan, the lender simply uses "negative" points to offset your costs - also referred to as Lender Credits.

    In the example below, by having the 4.75% interest rate, versus a 4.25% interest rate, you can lower or offset through a higher interest rate some of your mortgage loan closing costs. By choosing this option, it appear as if you saved thousands in closing costs. GREAT! But while lower costs always sounds good, you now have a significantly higher interest rate!


    Many lenders claim that they don't charge the standard mortgage loan origination fee of 1%. Sounds great, but you are still paying. No lender works for free, You just pay in a different way. Under any no origination fee claim the lender is increasing the loans interest rate slightly in order to get paid over time versus getting paid up-front. This is not automatically a good or bad option, you just need to do some math to see if it makes sense. Your Cambria Mortgage Loan Officer will be happy to run both origination and no origination options for you.

    OK, now what? Interest Rate versus Closing Costs

    No matter what anyone says, a zero cost, no closing costs, or no lender fee loan is NOT automatically a great deal. Interest rate and closing costs go hand in hand, and YOU need to do Math.

    Although it may sound so much better than paying thousands in closing costs, you have to analyze each individual loan and client situation to determine the benefits. Many lenders speak highly of the "thousands of dollars" you save with a no closing cost refinance. They never discuss the fact that you may spend significantly more in interest over the full life of the loan than you ever saved in up-front closing costs!

    Pick the best closing cost option for you

    In the example below, you will pay $28,466 MORE in interest over a 30-year loan by not just rolling your closing costs into the loan amount today versus a full no closing cost option. If you are going to be in the home just 5-years, you still save $6415 in interest versus a full no closing cost loan.

    On the other hand, maybe you are looking to sell the home in two-years. It probably makes sense to pay a little more per month, than to add to your loan amount. Finally, maybe because of debt ratio guidelines, or where your homes appraised value came in, it may make a lot of sense to select a no closing cost loan to make the deal work.

    View our live mortgage interest rate and closing cost options anytime - No Obligation, and no SSN required.

  • FACT: In a refinance loan, the vast majority of people roll the closing costs into the new loan amount.

    A common misconception is that a zero cost, or no closing costs mortgage loan is better than adding thousands of dollars in closing costs to the new loan.

    THE FACT IS PROBABLY NOT. Even if you were to only stay in the property 5 years, why have the higher payment when a few thousand dollars added to the loan principle is usually meaningless in the grand picture.

    I hope this article has helped you to understand the varied measures used to determine the advantages and disadvantages of a no closing cost loans. Each borrower is different, and the evaluations must be made on a case-by-case basis. As you can see, there are many factors to consider when looking at the available options. With us as your personal Mortgage Consultants, we will be able to answer all of your questions, outline the costs and benefits, and even give you a few new ones to consider!

    While everyone’s individual financial situation varies, let us show you the math so you make the correct choice.

    Of course, if a no closing cost loan makes sense for your case, we will be happy to do one for you.

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