When dealing with mortgages, it's important to check the math and the English twice, especially if the lender says "No cost mortgages."
The truth is that a "no cost mortgage" still costs something. If you want to know how much it costs, the answer depends on what kind of mortgage you want. When getting a mortgage, there are two types of basic costs: those that the lender can't control, like the appraisal cost, filing fees, title search, attorney fees, etc., and those that the lender can control, like the loan application fees, credit check fees, administrative fees, and processing fees, etc., without which nothing can be done.
To some lenders, "no cost" means that they don't want to pay anything out of their own pockets. Instead, all of the costs will be added to the loan amount. For example, if the loan cost is $5,000 and you want to borrow $150,000, the $3,000 will be added to the loan, and you'll end up borrowing $1,53,000 with interest for the whole amount. In this case, a 30-year loan with an interest rate of 6.25 percent would cost $942.05 plus $18.47 in interest each month. This is $18.47 more than the $923.58 you would make on $153,000. You might not realise you're paying $3,000 in interest every month until you've paid off the whole loan. This $3,000 won't be paid off until the 20th month, which is well into the next year. After your 19th payment, the amount you owe on the principal will drop below $150,000, to be exact $149,948.25.
How does this sound to you? This is how a no-cost mortgage works: every month, you pay the interest on the loan's unpaid balance plus $3,000 to pay off the loan.
For $1,500,000, you would also have to pay $18.47 in interest. So, if you paid that $3,000 out of your own pocket, you'd be paying both the interest and the principal on the amount you're borrowing. With a no-cost mortgage, you don't have to pay back the loan until 20 months have passed.
In some cases, you may not have to pay anything up front, but you will have to pay closing costs. In other cases, the lender will pay all the costs, such as application fees, commissions, and attorney fees, and then charge the borrower a high interest rate.
By now, you should have a good idea of how much a no-cost mortgage will cost you.
No-cost loans are very expensive. Just because it's nice that you don't have to pay anything out of your own pocket doesn't mean it's a good idea. In the long run, it will cost you more than if you paid out of your own pocket, so it's important to remember that you're not really saving money if you choose a no-cost mortgage.
