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
They usually roll it into the loan; I think what they mean is no out of pocket expense; i.e. you don’t bring money to the closing table. A competent loan officer can save you a lot of money however. I suggest Hometown Banc Corp. They may be your best opportunity for someone to say yes. If your credit does not measure up, they don’t simply “forget to call you back.” They help you get into a credit repair program you can afford regardless of income. Check out the free evaluation form at the source website and a Hometown loan officer will contact you .
Mr Noakes is right, there is no such thing as a “no cost” refinance. It is a marketing strategy. Nobody works for free and every refinance involves the services of at least some third party vendors whose bills must be paid.
Be careful on the actual terms of the refinance. I don’t know which program you are talking about specifically, but even if you are not being charged closing costs upfront, some programs roll additional costs into the amount of the loan. I’ve had an experience once where a “no closing cost” lender wanted to charge me $6000 for bogus application fees and unnecessary insurances.
Other lenders may extend the tenor (length/duration) of the loan. Sometimes, you end up paying much more when you consider the all-in economics. Some may also give low APRs for the first few years and the rates increase after a fixed period.
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HERMAN
November 30, 2009
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
November 30, 2009
They usually roll it into the loan; I think what they mean is no out of pocket expense; i.e. you don’t bring money to the closing table. A competent loan officer can save you a lot of money however. I suggest Hometown Banc Corp. They may be your best opportunity for someone to say yes. If your credit does not measure up, they don’t simply “forget to call you back.” They help you get into a credit repair program you can afford regardless of income. Check out the free evaluation form at the source website and a Hometown loan officer will contact you .
November 30, 2009
Mr Noakes is right, there is no such thing as a “no cost” refinance. It is a marketing strategy. Nobody works for free and every refinance involves the services of at least some third party vendors whose bills must be paid.
November 30, 2009
Be careful on the actual terms of the refinance. I don’t know which program you are talking about specifically, but even if you are not being charged closing costs upfront, some programs roll additional costs into the amount of the loan. I’ve had an experience once where a “no closing cost” lender wanted to charge me $6000 for bogus application fees and unnecessary insurances.
Other lenders may extend the tenor (length/duration) of the loan. Sometimes, you end up paying much more when you consider the all-in economics. Some may also give low APRs for the first few years and the rates increase after a fixed period.
July 1, 2010
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