No Closing Costs Loans Explained

By
Mortgage and Lending with Jamie Russen - Supreme Lending NMLS ID #95705

 

Did you know that one of the popular loans right now is the 30 year fixed "no closing costs loan".

Some lenders want you to think it's a magic trick. Today I'm going to reveal to you how it's done.

Here's how it works. The loans come at a slightly higher interest rate and then the lender pays your closing costs with the bonus they get by quoting you a higher rate than a "you pay the closing costs" loan.

Don't get me wrong, I think this is a great program and recommend it for many of my clients. For example, let's say you have a $200,000 loan at a 7% interest rate. If you refinance to a 6.25% rate, it would save you about $98 per month. But, if the closing costs would then be $3,000, it would take about 2 1/2 or 3 years to break even on the costs. In other words, it would take about 3 years of saving $98 to equal out the $3,000 that it cost you to make this change.

For example, if we had a no closing cost loan at 6.5%, instead of saving $98per month you would save about $66 dollars a month, but there are no costs, so the break even point is immediate.

The good thing about the "no closings costs loan" is, if the rate drops another quarter percent, from 6.5 to 6.25, 6 months down the road you can do this again. Because again, what did it cost you to do? Nothing!

You see, on this loan, since there is no cost, you can refinance even if the rate only drops just a small amount, because there are no costs involved for you to pay at all. No cost that you pay at closing, no costs that are rolled into the loan, Nothing!

Now, did you get as low as a rate as a "you pay the closing costs" loan? No. But is the extra $30 dollars per month savings worth the $3,000 in closings costs, well, there is no right or wrong answer to that. That's where I can crunch the numbers for you, give you honest information without all the sales pitch crap, and let you decide what is best for you and your family.

Now you know the truth, remember, you can use this strategy for buying or refinancing your home.

Let's make sure you are able to make the right choice for your future with all the honest answers and information you need!

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Yes, it's good to explain how those "no cost" loans work.

May 09, 2011 10:20 PM #1
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Jamie Russen

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