Whenever I review a new customers current loan information and notice their interest rate is higher than what it should be the first thing I ask them is if they got a no fee loan. Most of the time they say yes and are surprised that I know. I know because a higher rate usually means less or no loan fees.
No fee loans sound like a great idea to most people. Little do they know it could be much more expensive than a traditional loan. No fee loans certainly have a place in San Diego real estate for people that will keep their loan for a short period of time, meaning three years or less. No fee loans in San Diego and all over the country are expensive if the loan is kept long term. View my explanation on how a no fee loan can cost a lot of money.
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Nevin, My bank is offering to refinance my home at a lower interest rate (not even a whole point, of course) without any cost to me, how do they benefit by doing that?
Wanda - The rates are lower elsewhere if you pay fees. They mark up the interest rate to cover their expenses. Always get a few quotes and see who can get you the lowest rate and then figure out how long it will take you to recoup your costs. If you recoup in about 3 years or less and will keep your home then pay fees and get the lower rate
Nice spotlight Nevin on the misconception regarding "no cost loans". One size does not fit all. This has been a great time for those who meet the guidelines to buy down the rate as much as possible and move to a 10/15/20 year loan.
Doug - Agreed! Not doing so can get really expensive
Great job breaking down the actual cost of a no fee loan, Nevin. This is why you are the go to guy for all things related to home financing.
Craig - Thanks!
Love this informational piece!! You always do a great job on informing the consumers about differences in mortgage loans!
All the people who are involved in putting together a new mortgage have to be paid, a borrower can pay those expenses through their interest rate or through a one time payment of closing costs.
Great job explaining why a no-cost loan can actually be a very high cost loan.