No Cost Home Loan

A no cost home loan spares the home buyer extra costs such as appraisal fees, document fees, or even "points", a percentage of the loan that the borrower is often required to pay up front. These special loans are popular because they relieve buyers, especially first time buyers, from having to come up with out-of-pocket cash to get their mortgage set up. There is only one drawback. In order to save money on a no cost home loan, the homebuyer will have to pay a higher interest rate throughout the term. The wisdom of using this type of lending depends on the current cash liquidity, the affordability of the monthly rates, the value of the home, and the length of time the homeowner plans on staying in the house. Closing costs can often be daunting, especially when the borrower would rather spend that money on the new house. No cost home loans provide a fast way of getting into a house without using up savings.

This type of lending could save homebuyers as much as $5000 in closing costs. Those who are seeking a no cost home loan for a house that they don't plan on living in for the whole term may find the higher interest rate well worth considering. More and more buyers are opting for no cost home loans because they tend to move more often. A fixed rate will mean no variation in the monthly mortgage payment, even if interest rates increase. A 15-year (as opposed to a 30 year) will save almost twice as much in interest penalties over the term. However, a no cost home loan still allows borrowers to keep a cash cushion that could be used to make double payments on the mortgage principal, no matter what the term length is.

Of course, a variable rate will be assessed according to interest rates on the open market. If it changes, the lender will simply pass on the lower (or higher) interest rates to their borrowers. No cost home loans with a variable interest rate fluctuate with economic tides. Although homeowners could save money (especially with teasing advertisements about low first year rates), the truth is that variable rates may end up costing more than the borrower ever planned on spending. Once homeowners have established their rate, they should keep in mind that those closing costs will be figured into the total even though it won't be paid up front. Buyers should always shop around to compare options and ask about negative points or rebates that allow a bank to afford no cost home loans. Do the math, but do not "trust in uncertain riches, but in the living God, who give thus richly all things to enjoy." (Titus 6:17)

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