Home Mortgages: Does a No-Closing-Cost Loan Make Sense for You?

I have heard a number of radio ads and have seen many newspaper ads offering "no closing cost" home mortgages. These ads will tell you that you can get a new mortgage or refinance your existing mortgage at absolutely with absolutely no closing costs.. There are no points, no charges for an appraisal, no charge for title insurance, no costs, period.

On the face of it, this sounds like a great deal and no-cost mortgages are especially popular with people who are refinancing an existing mortgage.



How does this work? Normally, a 30-year, fixed-rate mortgage, would have closing costs in the neighborhood of $2,000 to $3,000 or even more, depending on whether or not you pay points upfront. In fact, we talked to one mortgage broker two weeks ago about a mortgage on an investment property we own in another state and the closing costs were quoted as $7,000 - outrageous but at least not typical.

You've probably heard the old adage, "there is no such thing as a free lunch," and these no-cost mortgages are yet another testimonial to the truth of this.



The way that no closing cost mortgages work is the lender gives the mortgage broker a rebate at closing which the broker then uses to to pay the settlement costs. The way the lender gets its money back is by charging a higher interest rate. For example, for a $230,000, 30-year fixed rate mortgage with no upfront fees, your interest rate would most likely be a least 0.35% higher that if you paid one point and the customary closing costs.

Here's an example of what this means.



As of this writing, there were mortgages available at 5.250 %, plus one point. As you probably know, one point equals one percent of the mortgage so one point on a $150,000 mortgage would be $1,500.

The monthly payment fo this loan, excluding taxes and insurance is $826.00. The closing costs would be $1,500 plus the normal settlement costs of, say, $1,500,A for a total of $3,000.

Let's compare this with a no-cost mortgage. Assuming the interest rate is 0.



35% higher as quoted earlier, the interest rate on a 30-year, fixed-rate mortgage would be 5.725%, yielding a monthly payment of $872.98 or about $46.00 per month vs. the loan where you would pay one point and the normal settlement costs.

Given a savings of $46.00 per month, it would take you about 65 months - or 5.5 years to make up for the $3,000 you paid in closing costs. This means that you need to determine how long you will stay in that house before deciding on a mortgage loan or a refi.



If you intend to stay in that home and not refinance your mortgage for more than six years, it might make sense for you to pay the point and the normal settlement costs. On the other hand, if you believe you will sell that house or refinance it in less than five years, a no-cost mortgage might be better.

Just make sure you look at all the various alternatives and their long-term costs before you leap into a new mortgage.

Have you heard about HD radio technology? It makes AM sound as good as FM and FM sound almost like you were listening to a CD .



.. and its free! To learn more about this amazing new technology, just go my Web site, http://www.hd-radio-home.com, to get all the buzz. Douglas Hanna is a retired marketing executive and the author of numerous articles on HD radio and family finances.

What is a Fixed Rate Mortgage?

As the term implies, with a fixed rate mortgage the mortgage rate is fixed for a set period of time, so no matter what movements occur in the lender's standard variable mortgage rate, the borrower's arrangement is fixed and, therefore, so are the monthly fixed rate mortgage payments.

A fixed rate mortgage would suit someone who likes to know where they stand. A fixed rate mortgage, as suggested by the name, is a mortgage where equal repayments are made every month.



Fixed rate mortgages allow you to easily manage and plan your monthly expenditure - because the payment will be the same every month and you won't be affected by any rises in the base rate. If the interest rates rise above the fixed rate on your mortgage, you will see the real benefits of the fixed rate mortgage.

A fixed rate mortgage makes it easy to plan ahead, because as the name suggests, the interest rate on your mortgage stays fixed.



This means that as a fixed rate mortgage customer, even if the Bank of England Base Rate changes, the interest rate on your mortgage remains constant over a fixed period of time. This makes your budgeting easier, because you can plan ahead knowing exactly how much your monthly repayments will be.

The fixed rate period can be anything between six months and five years, but it's always best to refer to a financial services professional before deciding what period of fixed interest rate to choose.



The biggest advantage of a fixed rate is that irrespective of fluctuations in interest rates, your monthly repayments remain the same throughout the period of the fixed rate - usually six months to five years.

A fixed rate mortgage is suitable if your mortgage repayments take up a large proportion of your income as it protects you from rises in interest rates. However, you would not benefit from any reduction in the lenders standard variable rate.

Fixed rate mortgages generally incur a penalty if redeemed within the fixed rate period.



The advantage of a fixed rate mortgage is that you know exactly how much your mortgage will cost, and for how long. If interest rates on your mortgage rise, well the fixed rate will not. Conversely, however, when mortgage rates drop, your fixed rate mortgage will not drop with them.

The key benefit of a fixed rate mortgage is that you are able to accurately budget your repayments for a set period of time.



In addition, fixed rate mortgages are an excellent option, if it becomes apparent that interest rates may be rising over the coming years, as you can protect your mortgage repayments against rises by choosing a fixed rate mortgage.

You may freely reprint this article provided the author's biography remains intact:

First Time Home Buyers - Get Your Top 5 Mortgage Questions Answered Here!

Buying a home for the first time can be a little rattling, as it is a huge financial investment and responsibility that will stay with you for years. If you are not familiar with how to buy a home and get a mortgage, then use this information to get a little insight as to what a mortgage is, and how one is obtained.



By understanding the basics of a mortgage, you are more likely to get a better deal and mortgage that best fits your financial profile.



Question 1: What is mortgage and where do you get one?



Answer 1: A mortgage is a conveyance of or lien against property that is terminated upon complete payment according to pre-determined terms. More simply, a mortgage represents the money you borrow from a lender in order to purchase a house. You must pay interest on the money borrowed in return for having borrowed the money in the first place.



You can find mortgage lenders everywhere, as the mortgage industry has greatly increased as there are more opportunities for people to buy property.



More and more money is being circulated through this market because of two reasons. One, investors recognize the opportunity for a high return on investment through mortgages. And two, the government is pushing for the ability for every American to be able to live the "American Dream" and purchase a house.



Mortgage lenders can be private investors or companies, as well as public companies, commercial banks, and other financial institutions such as a credit union.



There are mortgage officers and brokers that can aid you in finding a good mortgage from a qualified lender. You can also shop mortgages yourself by calling different institutions and asking for their rates and terms.



If you go online, there is a myriad of websites that will shop 4-5 lenders for you all at once, so you can get an idea as to the mortgage you could qualify for. Finding a good mortgage will take time and energy, especially if you shop around, which is highly suggested.



Remember that terms are negotiable, so don't take the first offer you get.



Question 2: How long does the mortgage process take?



Answer 2: The actual process of applying for a mortgage and closing takes anywhere from 30 to 90 days, depending on the mortgage lender and the situation with the property. It may differ slightly from case to case, but generally, this is how long it takes. However, you may take weeks, even months shopping for a lender that is best for your situation, depending on what it is you need to buy the house.



Those home buyers with a good financial profile may find good terms more quickly then those with poor financial profiles. Also, it depends on when the property will be available, moving times, perhaps a contingency like the sell of another property for the seller etc. It is important to create a timeline for this process by assessing both your needs as well as the mortgage lender's needs. You so not want to cut things too short, or be without money for the close of escrow.



Question 3: What mortgage rate is better: fixed or adjustable?



Answer 3: Whether or not one mortgage rate is better than another is really up to the home buyer's needs.



The rates alone are not better than the other. If the home buyer wants a slightly higher interest rate, but steady payments every month for the life of a loan, then a fixed rate mortgage is the way to go. There will be no fluctuation of interest rate and therefore payments are constant.



If the home buyer wants to take a lower interest rate in the beginning, with the chance for the payments to be higher or lower based on the current market rate, then the adjustable rate mortgage is the way to go.



Depending on the terms, the interest rate will either be higher or lower than the initial rate, depending on the current market rate every few years or so. The payments could potentially change drastically and the home buyer needs to be aware of this risk.



There are many other rate structures and mortgage lenders have gotten very creative by combining different types of mortgages and rates. Ask your mortgage lender for other options than just your basic adjustable and fixed rate mortgages.



You may find something that would work better for your situation.



Question 4: What are points?



Answer 4: Points are a percentage of the principal amount of a mortgage that is paid upfront to the mortgage lender in exchange for a lower initial interest rate. For example, if your principal $200,000 and you are asked to pay 1 point, then you would pay $2,000 to the mortgage lender.



You must calculate the different scenarios with out without points, because sometimes is disadvantageous to pay points and get a lower interest rate, because you still end up paying more with the points than you would with a slightly higher interest rate with no points.



Generally, points are a way for mortgage lenders to make profit very quickly and upfront. Do your homework before you agree to any terms so you don't spend more money than you have to.



Question 5: What is the loan to value ratio (L to V Ratio)?



Answer 5: The loan to value ratio is used to determine how much money you can borrow on the property. It shows the amount borrowed on the property as a percentage of the total current market value of the property. For example, let's say your property is worth $500,000, and you have a loan principal amount of $350,000.



You would divide your loan amount ($350,000) by the current market value ($500,000) and you get 70%. The loan to value is 70%.



Mortgage lenders usually do not loan more than 80% of the current market value, and they use this in addition to your financial profile to determine how much you can actually borrow as well as pay back in full and timely manner.



There are mortgage lenders, known as sub-prime lenders who will let a home buyer borrow 100% of the current market value, as well as a little more to help with closing costs.



There are also many government programs and other options that allow home buyers to purchase property with little to know down. Investigate these options to see if they would allow you to get into a home if your financial profile is not so good.



There are options for everyone, so do some research and get all of your questions answered so you are educated and prepared when moving into the mortgage process.

Purchasing a Home: Finding A Good Mortgage

Everywhere you look there are horror stories about the credit crunch and financial crisis, including mortgage market rigidities. So how to get a good mortgage into a financial crisis? Here are some guidelines to get the mortgage to the same current financial market.One key factors for achieving a shared mortgage is your credit score, making it a good idea to know what yours is before entering the mortgage market. Your credit report is a record of your credit transactions such as mortgages, loans, credit cards and payment plans. If you pay all your bills on time and make payment in full each month, then you have a good credit record. If you've had financial problems or large amounts of debt, your credit record may be average or below. Research Interest RatesMake you to review interest rates in the area where you buy. Even if you choose to help you find a mortgage, it is useful to have this information. Use a calculator to determine how much you can make the income to cover the loan. Most calculators ask its revenues and expenditures and develop an approximate figure. Realizing how much you can borrow tells you how much you can spend on a home you want to buy. This way, you do not consume time looking at properties outside of RatesRight budget.Mortgage now if you are eligible for fixed mortgage rates are at historically low levels. Most lenders provide a loan if you have 20%. A mortgage rate fixed rate fixed for the duration of the loan. During the term of the loan, rates will increase or decrease. It is likely that interest rate rises above the fixed rate, you can now get, so it is a victory. Interest rates on the growth of loans to adjustable rate mortgages and fall with fluctuations in the economy. So many people were burned in what the banks do not offer mortgages anymore.When choose to look out for items that are pre-payment of interest on your mortgage. If you intend to take the entire period to pay your mortgage, then points may be helpful. It will be ready for closing costs and other unforeseen expenses of the mortgage. They can really up, and it is good shopping to find the right deal with the lowest fees. Finally, you can get help with the provision of a mortgage broker. Be sure to ask for references that you can choose a professional with a good reputation.