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Save Thousands with a No-Fee Mortgage - Horse Spit!

By Michael G. MacKenzie, February 12, 2008
Executive Analyst, Community Acceptance Mortgage

The headlines read, Save thousands with no-fee mortgage… Or No closing fees… Or No points charged… You know the ones.

Of course being an adult, you realize that nothing in life is free. In the case of the so-called “no-fee mortgage”, even if certain closing costs are waived, these costs are paid for in the higher interest rate settled upon. Over time, this higher rate offsets any short-term savings you might get from a so-called “no-fee” loan.

But let’s be real. Closing Costs accompany all mortgage loans. They’re defined as customary costs, above and beyond the sale price of the property. They’re charged to cover the costs of transferring the ownership of the property at the time of closing. There are always items to be paid in connection with the loan. There are always items (such as mortgage insurance) to be paid in advance. There are always funds such as tax and assessment reserves to be deposited with the lender. And there are always title charges including attorney fees and title insurance.

Sometimes, however, lenders will claim not to charge “points” for the loan and this tactic is often construed as an advantage in the lenders favor over of engaging the services of a hard working mortgage broker who, invariably, needs to be paid for their services.

Let’s say your broker charges 3 points on a $300,000, 30-year mortgage and gets you a rate of 6.0%. That would be $9,000 in fees, right?

Let’s further assume that the lender counters with a no-points pitch and offers a rate of 7.0”%. With this offer, you would end up paying $68,882 in extra interest over the course of the loan!

So, which would you prefer? $9,000 (3 points) in brokers fees, or $68,882 in extra interest with “no fees”?

The next time someone tells you that there are “no closing costs”, ask yourself what other falsehoods you should be on the lookout for.

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