May 21 2007
No Fee Mortgages or No Closing Cost Loan; is there a catch?
Is there truly no mortgage closing costs with a no fee or no closing cost “advertised ” mortgage? Let’s think about this a moment. Bank of America, the second-largest U.S. bank, recently decided to market their no fee mortgage to new home buyers.  Do they want consumers to believe that all the closing costs are magically erased from the transaction completely? Ok, but this isn’t true. The costs are real and they do exist; home buyers will simply pay them in a different form; most likely with higher interest rates. Is that fair?Â
When recently asked about increasing the interest rate to cloak closing costs; Bank of America’s responsed by simply saying they were competitive. Maybe they didn’t hear the question. What bugs me mostly is the mystery they are building with the term “no fee”. They are selling consumers on no fees when the truth is the fees are being covered by the consumer with higher interest rates. Home buyers end up paying more in interest to the bank than they would have paid in closing costs. And that’s assuming consumers were given the option to choose.Â
Since we originate mortgage loans in Florida, I will use our State as an example. In Florida the State collects taxes when someone borrows with a mortgage to purchase their home. In Florida there are also Title Insurance costs to insure the Lender and the homeowner.  All of these costs are not excused because the bank or lender provided a no fee program. These costs are being paid and the borrower is usually the one holding the bag, that is, not knowing how they really contributed.
 It is simply my friends. The interest rate is increased so the bank, in this case, can earn more money from the secondary market, and in return, they take this extra money and pay these costs on your behalf. However, you end up paying the bank more interest over the life of the loan in the form of a higher interest rate! There is your real cost.
When clients call our office for trusted upfront answers on how this no fee mortgage works, we inform them. Closing costs are paid in one form or another; I wish banks would be more upfront as to how it really works.
If anyone out there needs a Florida no fee mortgage illustrated with our very accurate Good Faith Estimate; I will be glad to give you one. Then you can call Bank of America and compare. The real difference is not hiding how it really works. There’s usually always a catch. And you will be truly informed when working with a true Mortgage Professional.
Stephen Thaggard