What Is a No-Cost Mortgage?

No-cost mortgage (or no-cost refi) is a term for a specific type of mortgage loan that relieves borrowers of certain closing costs. Instead, these costs are either added to the borrowed amount or the borrower pays a higher 澳洲幸运5官方开奖结果体彩网:interest rate.

In other words, a no-cost mortgage does not mean the borrower doesn't pay the closing costs. Regardless of how the closing costs are embedded into the 澳洲幸运5官方开奖结果体彩网:mortgage loan, the borrower eventually pays via a higher rate or a larger loan amount. Both options usually lead to a higher monthly payment.

Understanding No-Cost Mortgages

A no-cost mortgage is when the lender pays the borrower's loan settlement costs and then extends a new mortgage loan. In a no-cost mortgage, the mortgage lender covers the loan closing costs in exchange for charging the borrower a higher interest rate on their loan or the costs are added to the borrowed amount—called the 澳洲幸运5官方开奖结果体彩网:principal.

There are various closing costs, depending on the type of real estate being purchased. On average, the total closing costs for buying a home can be 3%-4% of the purchase price.

Closing costs can include:

• Attorney fee for the real estate attorney
• Application fee for the lender to process the loan paperwork
• Credit report fee to run a credit check on the borrower
• Homeowners' insurance premium
• Government property taxes
• Origination fee for the administrative costs of processing the mortgage
• Prepaid interest accrued between the closing date and the first mortgage payment

Despite incurring a short-term expense, the mortgage lender can sell the mortgage in the 澳洲幸运5官方开奖结果体彩网:secondary mortgage market since a higher-interest-rate mortgage might fetch a higher price than a lower-rate mortgage. A m꧒ortgage broker, as opposed to a mortgage lender, sometime♋s offers the same no-cost mortgage because they may receive a rebate from the lender to cover the cost or as payment.

A no-cost mortgage can be beneficial to 澳洲幸运5官方开奖结果体彩网:first-time homebuyers who might lack the cash for the closing costs. Since no money is due at closing, the money could instead be applied to a larger down payment, which can be 10%-20% of the purchase price.

However, a borrower𓆏 should perform a thorough analysis to determine the most suitable mortgage option.

The Type of Mortgage That’s Best for You

Purchasing a home and taking on a mortgage loan is a large financial burden. There are several kinds of mortgages that, depending on your financial situation, can make buying a home and taking on a mortgage easier in the long run. A fixed-rate mortgage, one of the most common forms of home mortgages, has a fixed interest rate and payment for🌌 the entire term of the loan.

Another type of mortgage is a 澳洲幸运5官方开奖结果体彩网:rate-improvement mortgage, which contains a clause that allows the borrower to reduce the loan's fixed-interest-rate once throughout the life of the loan. A𒁃llowing for a one-time interest rate improvement enables borrowers to take advantage of a more favorable borrowing market in the future, as the borrower can take advantag⛦e if interest rates fall lower than the borrower’s initial mortgage rate.

However, while this can be a great opportunity, a rate improvement mortgage can sometimes come with a fee and begin with a higher-than-market 澳洲幸运5官方开奖结果体彩网:interest rate.

The Bottom Line

A no-cost mortgage can be beneficial because no money is due at the loan's closing. This allows a borrower to use their savings for the downpayment or home repairs by freeing up cash that would typically be due at the closing.

However, a no-cost mortgage is a misnomer since you eventually pay the closing costs. Whether the closing costs get added to the principal or via a higher interest rate, both options will lead to a higher monthly payment.