Loan

Does these no closing cost refinance programs work ?

200,000 loan reduce payments in half, apr 7.5%

The truth is there is no such thing as a no cost, no fee, no points loan…it’s a sales tactic that works very well.

In reality, even when you get one of these programs, the mortgage broker or the bank loan officer must get paid somehow, and it’s done through a rebate known as Yield Spread Premium.

In the US, mortgage brokers have to disclose this “hidden cost”, but banks and direct lenders do not, and some will actually lie to you if you ask them about it, because by law they do not have to disclose it. The same is true for mortgage brokers who act as bankers just long enough to sell the loan.

A better way to deal with this is to pay your origination fees up front, which gives you the lowest APR and monthly payment possible under you specific scenario, because YSP/rebate costs you $100, $200, $300 per month depending on your property value, for the life of your loan, and the greed of the broker/loan officer. Not so bad if you don’t plan to be there for a long time and you are being charged no more than 1 point, but wouldn’t you like to know what the loan is actually costing you?

These loans with minimum payments can get you in deep trouble if you’re not careful…you need to get educated on what a Pay Option Arm, or Hybrid ARM really means to you, and if you make the minimum payment, it always means you will have negative amortization, or simply put, you lose equity every month.

Work with a reputable lender in your local market, and ask them to disclose “ALL” costs associated with their loan offer to you…especially that hidden back end fee. If you are paying more than par for the loan, you are paying YSP.

My suggestion is always to have some down payment…at least 10%, but preferably 20%, but if you don’t, don’t buy a house with 100% financing in a troubled market, only in a fast appreciating market…and that’s not where we are currently. You could be in big trouble if you combine 100% financing wth negative amortization in a flat to down market.

Be careful out there.

Robert Noakes
Real Estate Investment Consultant
Sr. Mortgage Planner
415.652.8112
robert@noakes.com

No Fee, No Cost No Points Home Loans Refinance, New Home Purchase

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