Question:

When to get a no-cost home loan?

Answer:

If you tend to change homes every once in a while, a no-cost home loan is your loan. Taking a no-cost mortgage does reduce your closing costs with thousands and the break even point occurs in several years - plenty of time to arrange a home refinance, or sell the house.

For example, a no-cost home loan may save you $4,500 in closing costs. Your mortgage payment is increased with $43, and 4500 divided by 43 and then by 12 shows that your break even occurs after more than 8.5 years. Plenty of time if you do not plan to keep the house for longer. Also, by that time you should have built some equity and even if house values have declined, you should be able to sell that house well.

However, do not take a no-cost mortgage if you intend to keep the house. It is true it will be cheaper, and it is true that these days mortgages are often refinanced at an average of 3 years, but you never know what the market will be in 3 years time. If you are planning to keep that house, you'd better shop for the long run first, before you consider a no-cost loan.

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