No-fee Mortgages May Or May Not Be Cheaper

As usual with this kind of advertising, the answer to that question is "maybe, or maybe not." Any company that just did away with a source of revenue would soon go broke, as those charges are necessary to make a profit. A mortgage company isn't going to just eliminate fees that can add up to as much as three to five percent of the loan amount.

How do these loans work? The lender will charge you a higher rate than a lender that adds closing costs will. Their profit has to originate somewhere; it's going to come from charging you more to borrow the money. That's not always bad; it just means that they are earning their money in a different way. The mortgage company may earn some extra money by selling your mortgage to another lender at a later date. The increased rate of interest might make the loan easier to sell on the secondary market.

What does this mean for you, the customer? As with all loans or anything else that you might buy, you need to compare lenders before applying for a loan. Only when you look over the total cost, including how much you will pay over the life of the loan, will you be able to determine who is offering the best deal. The only way to see who is offering a bargain is to compare the costs of all the loans and do the math. Each lender is going to have different ways of making their profits; some will charge higher interest rates, others will charge higher costs at closing.

Is the promotion a scam? No, but it is a bit misleading. You aren't actually getting a bargain, but the claims makes for good advertising. The companies, through their advertising, want you to believe that you are paying less, as claiming that there are no closing costs might lead you to believe that you are paying less money. Anytime you consider taking out a home loan, you should compare all of the quotes from all of the mortgage companies you talk to in order to find the deal that works best for you. Smart consumers always know to be suspicious when something seems too good to be true.

©Copyright 2007 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm with a number of informational Websites, including HomeEquityHelp.net, a site with information regarding home equity loans, mortgages and lines of credit.

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