Bankers Donít Want You to Know that You Pay for Your No Cost Home Loan Forever

Bankers Donít Want You to Know that You Pay for Your No Cost Home Loan Forever
Nowadays the competition on mortgage loans market is growing rapidly due to constantly decreasing interest rates. That is why many companies come up with different programs and schemes to attract customers and stay in business. There are ones that are on the market for pretty long time but still remain popular, too.

One of them is No Cost Home Loan – the one bankers say is free but you actually pay for it as long as you have it. Since it is advertised virtually everywhere and in all ways, it attracts many people, especially now, when rates are extremely low and a large part of the population is thinking about a refinance loan or home equity line.

This is no lie; you actually can get a loan at no cost. The thing the bankers don’t tell you is that you actually pay higher interest rate than you actually qualify for. So while saving $2,000 or $3,000 on closing cost, you get $100 to $300 higher monthly payments.

For example, you want to borrow $200,000. If you pay all the costs and ask for the best interest rate available, say 6% for this example, your monthly payment will be $1,199. If the banker convinces you to accept “a bit higher” interest rate, say 7%, and save $2,000 on closing costs your, your monthly payment will actually make $1,330, which is by $131 more than the one with closing costs.

If you pay the closing cost it will take you only 15 months with $131 lower monthly payments to get your $2,000 back. And if you keep the loan for five years more, you’ll save as much as $7,860. So think whether you want to save $2,000 and than loose $8,000 every five years.

Unless the difference between two rates (the one with closing costs and the one without) is very small, say .125%, you probably should pay the closing costs and get the better rate. Just ask what are the closing costs going to be and what is the difference in interest rates, then calculate the difference in two monthly payments. If you can return your closing costs in two years or less with the difference in monthly payments and you plan to stay in your home for five years or more, paying the closing costs and taking the better rate is probably the best choice for you.

© 2010, Jericho Mortgage — Bankers Donít Want You to Know that You Pay for Your No Cost Home Loan Forever