No Fee Mortgage Loans - Information and Advice
"Get the lowest mortgage loan rates and best home
equity loans."
No-Fee Mortgage Loans?
Which is Better in a Mortgage Loan - No Points or a Low Rate?
A first-time homebuyer who happens to have plenty of funds for a down payment
sent in this question:
Instead of using the current rate of 7.75 percent, my lender says that I should
take a "no-fee" loan of 8.5 percent. That way, I wouldn't have to worry about
any of the closing costs (around $4,000), and he said that I could refinance
when the rates drop. . .
I told the consumer that in my opinion the lender is steering her in the wrong
direction. You should take advantage of the mortgage loan with the lowest
interest/finance cost over the first three years, period.
• If rates go up so that she cannot refinance, then she is going to end up
paying much more over the long term with the higher rate.
• If rates stay where they are, she is going to have to pay closing costs if she
refinances. In effect, she is going to have to get the same loan twice.
• If rates go down, but only after a few years, then by the time she refinances
she will have already cost herself more in excess interest than she saves on
closing costs.
I have nothing against "no-fee" mortgage loans. Most first-time homebuyers struggle to
make a down payment. If you can use a no-fee loan to help meet critical down
payment cut-off points, then you can lower your cost of mortgage insurance. If
that extra $4,000 can help you get to 5 percent, 10 percent, or 20 percent for a
down payment, then go for it.
On the other hand, if you can reach a cut-off point without help, then the
more you pay in points up front and the lower your long-term rate, the better
off you are. Refinancing is time-consuming and expensive.
My recommendation is to go for the best rate you can get the first time,
rather than planning to refinance your way out of a bad loan.
Click here for
no fee mortgage loans from E-Loan that don't
increase your interest rate.
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