Mortgage Definition: No Cost Mortgage

Today’s Mortgage Definition is: No Cost Mortgage

No Cost Mortgage – A Simple Definition:
The no cost mortgage (also sometimes called the zero cost mortgage) is an option when interest rates are falling and is when the lender agrees to pay all of the closing costs associated with the loan. All closing costs as in nothing is added to your original loan balance.

No Cost Mortgage – An Expanded Definition:
Just because the mortgage is a no-cost mortgage doesn’t mean there aren’t costs — it just means that the lender agrees to pay for the costs in exchange for a slightly higher interest rate. So just because you aren’t paying for an appraisal, an underwriting fee, a credit report fee or any other type of fee doesn’t mean that someone isn’t paying them… it just means that the person paying these fees isn’t you.

One of the common questions people ask is “how much higher of a rate will I get if I want a no-cost mortgage rather than pay my own closing costs?” and the answer is — it depends. As a general rule of thumb, expect to have a .25% to .50% higher rate if you decide to opt for a no-cost mortgage.

As counter-intuitive as it may sound, no-cost mortgages are not always the best financial choice – it depends on your situation. Typically, the longer that you plan to keep the home (or, more specifically, the loan on the home) the more sense it makes to pay the closing cost and get the lowest possible rate.

Is a no-cost mortgage right for your situation? Maybe. But be sure to double check with your loan officer to see what the numbers stack up to be in your situation.