Answer: The simple answer is yes.
It is possible for me to give someone a no-fee mortgage. In practice, however, I have funded very few because for most people it's just not a good deal. That's a bold statement, so I'll go a little further to explain my position... Have you ever heard the expression, "There's no free lunch?" That about sums up the situation. The simple fact is that no one works for free. Every person that looks at a piece of paper that you sign has to be paid to read it. That money is going to come from somewhere.
There are two places that it comes from- you directly, or the bank. Banks are smart about this and don't mind paying your fees for you. You might think that you're getting a great deal because you don't pay a bunch out of pocket, but there's a catch- you have to pay a premium interest rate. The banks will give you a higher-than-market rate in exchange for the lack of fees. In the long run it never pays off.
Here is a comparison of a mortgage with fees and without:
| With Fees | No Fees | |
| Loan Amount | $250,000 | $250,000 |
| Rate | 4.875% | 5.5% |
| APR | 5.021% | 5.683% |
| Payment | $1,323/mo. | $1,420/mo. |
| Due at Closing (estimated) | $4,800 | $0 (depending on what is included) |
As you can see, there are significant savings in your monthly payment. After fifty months, you come out ahead by paying the fees up front and not financing them. This is good information, but the real story is what happens if you keep the loan for a long, long time. After thirty years the difference in interest that you pay is $30,000. That's a lot of cash.
The moral of the story is that each consumer needs to decide for themselves what the best deal is and how their mortgage is going to incorporate in their greater financial and life plans. My job is to coherently present all options to my clients so that they can make an informed decision.
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I need to copy this and show people when they ask this question. This sounds a lot more eloquent!
ReplyDeleteYeah Jon, this is yet another great post! Thanks!!
ReplyDeleteI have another question.. I heard someone talking about zero down loans, my understanding is that those don't exist anymore, even for people with great credit etc. etc. Is that true? Or are there actually still any around for people to use to take advantage of this, uh, extreme buyers market?
Just asking.. I didn't think there were any anymore since the whole economic crisis, but someone mentioned it in conversation and they sounded pretty sure so I thought I would ask you..
That is a great question. There still some zero-down options out there, but there's quite a more to the story than that. Check out my next blog!
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