Wednesday, December 15, 2010

Maryland Real Estate Authority

Maryland Real Estate Authority

The Pros and Cons of “No-Cost” Mortgages

Posted: 15 Dec 2010 02:00 AM PST

With a “no-cost” home loan, you have the advantage of not having to pay as much upfront. So while you still have to pay your mortgage and property taxes, you do not have the expense of closing costs.

As you know, nothing in life is free. When a financial institution offers a “no-cost” mortgage, be aware that the costs are factored in somehow. It's up to you to figure out if such a mortgage is right for you because a bank or credit union is going to make sure that it works for them.

Some “no-cost” mortgages have higher interest rates than traditional mortgages. With the higher interest rate, the lender can recoup the money spent on paying the closing costs. Also, some “no-cost” mortgages come with pre-penalties that you would have to pay if you wanted to refinance at a lower rate.

Although it may seem like a “no-cost” mortgage would be of little benefit, there are situations in which it can work in a borrower’s favor. If paying closing costs as a lump sum is just too difficult, but you really can afford a mortgage, then it might be better to pay a little more each month to buy the home you want. People only planning to stay in their Maryland real estate for just a few years and those who are able to refinance at a lower rate (if there are no prepayment penalties) may also come out ahead if they opt for a “no-cost” mortgage.
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