Many clients want to know if there is really such a thing as getting a home loan and paying no closing costs. The reply is both yes and no. Yes, you can get a mortgage and not be charged a closing cost up front, but however you will still have to pay it over time. So really you’re not getting it at no expense, you are just choosing to pay for it slowly and progressively. decidedly there is a catch if you choose this variation – you will have to pay a higherbank rate to make up the money mongers for not being able to compile the closing costs up front.
So what are the pros and cons to not having closing costs? If you are sensitive on dollars and just don’t have the cash to throw that much money down at once it’s effective to be able to roll up the closing costs into the mortgage itself. Depending on the circumstance, you may have to make the decision if you will be better off putting your money into a good-sized down payment. Doing this can imaginably be a more economical way to go, but you should compare what your monthly payments would be for each option.
If you are planning on living in the house you are purchasing for a long amount of time, you may want to rethink a no-cost mortgage. It may benefit you in the short term, but even after you pay off the closing cost you will still be paying the high interest rate due to it which is just more money out of your pocket. Generally speaking, if you plan on living in the house less than five to eight years, then it won’t be as big of a deal. If you want to live there longer you can always attempt to refinance and get a better interest rate, but you may not be so lucky with how low already currently are.
Typically, not paying closing costs on your mortgage will add about half a percentage point onto the interest rate you’re paying. So if you got a rate of 4.25 on a 30-year-fixed-rate mortgage, a zero-cost mortgage could have a rate of 4.75 percent. Depending on what the closing costs could have been otherwise, it could be a bit more or less.
Something else you should keep in mind is you could still have to pay some of the closing cost upfront even if you do have a zero-cost mortgage. This means you may end up paying alongside for property tax and home owner’s insurance. It all is based on your lender and what costs they depend upon when dealing with this situation. Make sure to find out exactly what is covered or not covered when speaking to lenders, and it’s always a good choice to talk to multiple lenders to find one that agrees with your needs best.
