Is it really a “no fee mortgage” or is this just another shell game? A no closing cost mortgage sounds like the mortgage company is offering to charge you no fees to write a new mortgage, but, of course, it isn’t.What it is really doing is raising the interest rate that it charges you on your new mortgage to pay for that “no cost” loan. The mortgage company then uses the additional interest it earns from the higher monthly payments that you are making on your new mortgage to pay for the costs it incurs to write that loan. This is a technique that has been around for years but has recently gained in popularity as Bank of America has had a national ad campaign touting it’s “No Fee” program. Key Points:1) A no fee mortgage typically means that all the lenders fees, third party fees (ie appraisal, survey etc.) government fees and sometimes title charges are being paid by the lender. As a borrower you will still need to pay for your insurance and tax escrow if applicable.2) Pay close attention to the interest rate you are paying in a “No Fee” scenario mortgage. You need to take into consideration how long you will retain ownership of the property or how often you plan to refinance to determine if paying the higher interest rate works out in your favor. 3) Ask your mortgage planner to calculate the “Total Cost” of the no fee scenario as compared to a scenario where you pay typical closing costs. Your decision to proceed with a no fee mortgage should based on sound financial thinking and not on the idea that you are getting something for nothing.The “no fee” technique can be advantageous in some situations but you should consult a certified mortgage planner before chosing this financing structure.
