Most of the home buyers seek help of mortgage lenders to provide loans. But, as there is a processing fee involved in processing the loan which can range between 3-5 % of the loan value. This is the sole reason why people tend to look for an alternative like a no-cost mortgage. The benefit of using a no cost mortgage is that it comes accompanied with a non committal upfront fee, making it the most preferred choice for your instant cash needs. Discounts or no-cost are words which always entice potential buyers and no-cost mortgage has a similar effect. However, not everything is hunky-dory and it is best to weigh the pros and cons before opting for this.
Rate of Interest
Any lending is intended to make profits. In the case of mortgage loans, lenders earn through fees as well as through the interest charged. Even though no-cost mortgage does not include an initial fee, the bank can always ensure that a higher interest rate can recover that cost. While it may sound just fair, paying interest over a period of two to three decades may lead you to pay slightly higher amounts as compared to mortgage loans. It is always good to compare the offers before falling into a trap.
Fee charged by Brokers
While mortgage loans have a higher scope of margins for brokers, no-cost loans tend to benefit the consumer more as they do not shell out an additional fee. So, even though borrowers pay quite a lot to the bank, the difference is compensated by minimal broker fees.
As a famous saying goes, “There is nothing called a free lunch”. Despite the “no-cost” tag, a home buyer has to deal with many other kinds of fees. A classic example is that you will have to pay local and state taxes pertaining to home ownership. Some other charges which you may need to pay include homeowner insurance and even escrow fees at times.
Change in Principal
In certain cases, lenders can resort to unscrupulous business practices because they know the tricks of the trade better than you. Hence, it is essential for you to pay attention to the loan details while signing the loan agreement.
Transparency & Comparability
More often than not, most no-cost mortgages are simple and transparent. The institution asks you to pay interest for borrowing money for buying a home. In a classic mortgage loan, banks can offer interest rates which are below-market rates for alluring customers while they may take a high charge as closing costs. This may lead you to scrutinize more details about the lender’s costs.
Investments in Real Estate
Buyers consider a number of factors before availing a particular loan. Those who are intending to sell a home within a few years of purchase may just opt for a deal where interest rate is higher. First-time homeowners do not get an easy deal while buying homes. While they may barely be able to manage the monthly installments, it is difficult for them to accommodate extra amounts as the up-front fee. No-cost mortgage offers are perfect as it meets their immediate requirements. It is best if you do due diligence and make a wise decision which would be advantageous to you over the long run.
This guest post is written by Franklin Dias. He helps provide quick cash loans through his website along with some useful tips related to investment and finance.