How it WorksNothing is free, right? Everyone knows that we probably want something in return for paying loan fees. We need to somehow make up for the cost in order to stay in business. So, what’s the catch? For us to pay the fees involved with a loan, we obtain loans that carry faintly higher interest rates. The lender expects to make more money over the course of the loan because they are charging more interest. Because of that benefit to them, they are willing to pay us enough money to cover the fees related to originating the new loan. BenefitsYou benefit if you are a short-term owner. If you plan to own the home for 3-4 years, you will typically payoff the loan before the lender has time to recoup the upfront cost. The point at which the lender begins to recoup that cost is called the Break Even Point. Learn your break even point by clicking here . Closing costs vary based on several factors, but you can expect to pay $4,000 to $8,000 for conforming loans and are expected to pay that money at the time the loan closes. If you are purchasing a home, No Fee Financing allows you to buy the home without having to come up with additional cash up front. The higher interest rate given to accommodate a No Fee scenario also offers more tax deductibility. In an environment in which rates are declining, you can refinance and again, pay no fees. With this in mind, even a fractional rate reduction is beneficial. It’s simple. You can retain your net worth and liquidity for other investments by not wasting thousands of dollars to merely obtain a loan.
Despite all these benefits, there are some reasons No Fee Financing may not be the most prudent choice. Is it right for you? For many people, having a low monthly payment is a primary concern. With a higher interest rate, you won’t necessarily have the lowest monthly payment available. Assuming rates don’t change drastically and you anticipate owning your home long term, No Fee Financing may not be the best for you. The longer you maintain the loan, the more likely you are to pass the break even point, allowing the lender to time to recover the up front costs. If you plan to borrow a relatively small sum of money ($150,000 or less), the lender may not provide enough profit or upfront money for us to cover all the costs related to the loan. There are also some program restrictions. Home equity lines of credit, fixed rate seconds, construction loans, and some adjustable rate mortgages may not be available for a No Fee scenario. Some loans also have pre-pay penalties. In other words, if you payoff the loan within a certain time frame, you are charged a penalty. Programs with prepay penalties typically don’t provide a situation in which you will be able to payoff the No Fee loan and still benefit prior to the break even point.
Break Even Point(coming soon)Learn about your loan options Contact us directly to learn more
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