No Cost Mortgages for Consumers Short on Cash
There are many options for consumers who want a mortgage but lack cash. While certain groups, such as veterans, can buy a home for little or no down payment, the rest of us will have to look at more conventional options of buying. One of the most popular and widely used options is a no-cost mortgage. These mortgages have some advantages and disadvantages for consumers. Weighing these pros and cons will help you determine if this mortgage product is right for you:
No Cost Pros
- Many of the expensive fees associated with closing a home mortgage (like the appraisal fees, title fees, and loan origination fees) are eliminated by adding them to the loan balance.
- These fees have increased over the past year. This improves the value of these types of mortgage products as consumers stand to save more initially on these loans than in the past.
No Cost Cons
- You may think that this adds up to savings, the result of rolling your fees into your overall loan balance results in a higher interest rate.
- After about five years, most no-cost mortgages begin to lose money. This is true whether it is a new purchase or a refinance. When you roll the closing costs into your mortgage, it doesn’t pay in the long run.
The No Cost Refinance Decision
In short, if you don’t plan on staying in your home for five years or plan on refinancing again in that time, a no-cost mortgage could be exactly what you are looking for. If you want to buy a home today, capitalize on low interest rates, and then walk away from the mortgage rat race, pay as much as you can up front rather than opting for a no-cost mortgage product. See the Bills.com resource No-Cost Mortgage Refinancing Explained.
If your credit isn’t the best and you’re curious about your options, learn about bad credit mortgage refinancing.