No Cost Refinance

San Diego MortgageSan Diego Mortgage | Zero Cost Loans

There is NO such thing as a Free Credit Report, Free Trial Offer, or a Free San Diego Mortgage loan.  The Free Credit Report offers want all of Your personal information, which they will sell for significant profit.  The Free Trial offers always want credit card information.  And the so-called “No Cost Mortgage” is just a lie. The money is made by the Mortgage Company one way or the other.

There are two ways that a Mortgage Lender can be financially compensated from the Origination of a Loan. “Origination” specifically refers to the creation of the loan and not the servicing or payment-collection of the loan.

#1 – Up front fees.
The up-front fees are easy to see.  They are all listed on the Preliminary Loan documentation and don’t have anywhere to “hide”.  These fees can be listed as: Processing Fee, Application Fee, Loan Lock Fee, Origination Fee, etc.  With the new  Good Faith Estimate, all of these Fees get added up in to one fee called the “Total Settlement Charges”.  With a normal Mortgage loan, there will be thousands of dollars in fees to make the transaction go through.  The amount varies by Lender. Loan type, and Loan Amount.

#2 – Back-end fees.
The fees You pay, but don’t see are tied to the Interest Rate.  This is called a “Yield Spread Premium”. When a Mortgage Company locks a loan, the interest rate they are offering can provide a commission that is payable almost immediately. When a loan rate is locked, the Mortgage Company is asking the Loan Investor to set aside the money needed for this new loan that will need to be funded soon.  If the Mortgage Company offers You a rate that is slightly above the “Free” rate, they will instantly earn a Rebate or “Yield Spread Premium” of as much as 1-3% of the loan amount!

When you see an offer for a “NO COST Mortgage”, the Mortgage Company is basically just saying that You are going to get a higher interest rate so they can make their money with #2 instead of #1.  No Cost Mortgages can make sense if You have a short-term outlook to be in the Home.  If You have a long-term outlook to be in Your property, then a No Cost Loan will actually cost You much, much more!

This is typically an easy concept to understand, but it’s still difficult to determine if a No Cost Loan is right for You. Email me below and I’ll help you find the best San Diego Mortgage for You.

One Response to No Cost Refinance

  1. Pingback: How to Determine Whether You Should Refinance or Not… « San Diego Mortgage Money

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