Question:

What goes with mortgages with no closing costs?

Answer:

Mortgages with no closing costs can apply either for initial purchase or refinancing. As a refinancing option, they are a top choice since they allow smooth transition into a new loan without any cash prepayments.

Some borrowers prefer to cover the closing costs and even buy points off the interest rate. However, calculations show that this may not be most financial-wise to do as they reduce their monthly payment with an insignificant sum (such as, say, $50 and often less) and break even compared to a no costs option as late as 4 or 5 years. Well, at this time you can sell or refinance again and you needn’t have bothered paying substantial fees upfront when you could have avoided them.

Also, beside the appraisal fee usually paid by the buyer, the borrower will have to open an escrow account for servicing taxes and insurance premiums on the property. These two are most probably the only obligations (perhaps some prepaid interest, as well, to bring the loan into the lender’s loan servicing cycle) that the buyer will have to settle with a mortgage with no closing costs given all other non-recurring fees are rolled into the loan for an exchange of up to .500% points on top of the interest rate.

However, mortgages with no closing costs are not so applicable when the borrower wants to keep the property in the long run. In that case prepaying points to buy off interest rates will help them build equity on the home faster.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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