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Mortgage No Closing Cost - Looking for a mortgage - no closing cost included?

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One of the hardest parts to finalizing the mortgage process is to finish paying off the cost of closing. Homeowners are surprised when the total outlay due is much higher than anticipated. This is because this amount is not made evident anywhere during the period of the loan. Thus the relief that seems imminent never materializes, as the realization of having to pay almost six percent of the total value of the mortgage finally sinks in. It can be a real surprise to those people who are not familiar with this process.

There is only one such closing cost that is even considered to be attractive to consumers in the know, and that is the no closing type. In this way, there are no surprises when the final papers are ready to be signed. However, this is not the whole story, and many of the prospective borrowers don’t understand how these types of loans really work. To say they are free is a giant misconception, because in point of fact, that is not the truth. Lenders know that having no closing costs seems to be an attractive option to many prospective clients. But these individuals don’t always read all of the conditions that have to be met before signing the contract.

These types of loans can cause the borrower to actually end up paying a greater interest rate as compared to the standard variety; when the closing costs are borne by the payer. On average, a rate of about 0.25% more is seen with this type of mortgage. A lending institution can use the difference in interest paid to help with the closing costs by using a strategy called yield spread premium that is essentially a fund created for this purpose.

When comparing the standard loan to the no closing cost variety, it will typically indicate that the former will end up costing less over the entire loan contract than the latter. Any loan that advertises a no cost closing actually ends up costing the borrower more money over the long term due to the higher rate of interest paid. For those borrowers that have the money, they have the option of paying more at the end, or paying a little more with each installment. This all depends on the financial situation in which the payer finds himself in at the present time. Each type of loan represents a slightly different risk, so all of the options need to be considered carefully.

Many times, the situation itself will help to determine whether a no closing cost mortgage is the better option. For those individuals that are intent of paying off the balance in a short time frame, the best option is to pick the no closing cost method. This is because the higher interest rate only applies for a limited time, which would greatly influence the decision; since the ownership costs are reduced, and there is less cash required with this method. One thing that the applicant must realize is that every lender has different rules and by carefully reading the contract before signing there is less chance of being surprised somewhere down the line. While this is true of any financial contract, the mortgage industry is one area that has to be heavily scrutinized to ensure that the proper deal is struck for both parties.

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about 2 years ago

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