zero point loans and no cost loans

Guest 0.10 Dollars($)

Are zero point loans and a no cost loan the same thing?

Samantha · Posted: Wed Apr 12, 2006 2:44 pm Post subject:

Hi Rodger,

No there is difference between the two.

In a zero point loan, a borrower does not buy their interest rate down by paying points. The closing costs (i.e. appraisal, credit report, lender doc fees, title and escrow, etc.) are however going to be paid by the borrower here.

In a no cost loan, a borrower accepts higher interest rate for his loan. The lender or broker pays all the non-recurring closing costs. The interest rate is typically 0.25% - 0.375% higher than that on a zero point loan.

God bless you.

For MortgageFit,
Samantha

Guest 0.10 Dollars($)

Thanks for the reply. I have one more question. Can I get a no cost loan on a purchase mortgage?

Samantha · Posted: Wed Apr 12, 2006 3:08 pm Post subject:

Hi Rodger,

You can get a no cost loan on a purchase mortgage but the rate may vary based on the costs that the buyer is going to pay. It is determined by your purchase contract based on the custom of your country that who is going to pay the title and escrow fees.

If these big expenses are paid by the seller or builder then, it becomes easier for a buyer to get a no cost loan. On the other hand if you are responsible for covering these expenses then also you will be able to get a no cost loan but the rate may be higher than a standard no cost financing.

God bless you.

Thanks,
Samantha

Bill · Posted: Thu Apr 13, 2006 7:58 am Post subject:

Rodger,

“Zero Point” generally means that the borrower does not pay any Loan Origination or Rate Discount points (as percentage of the loan amount) … however, all other associated loan fees are paid as usual (ie: appraisal fees, title fees, processing fees, etc.).

“No Cost” generally means that the borrower does not pay any loan fees whatsoever. All fees associated with the mortgage are paid by the lender. Some lenders will call a purchase mortgage a “No Cost” mortgage if the Seller will agree to pay all closing costs … but this version is somewhat misleading due to the fact that there are still costs associated with the actual loan.

As mentioned above, No Cost mortgages are available for home purchases. A true No Cost with no associated mortgage loan fees trades a higher rate of interest for the benefit of no fees … this rate increase earns the lender more revenue upon resale of your mortgage into the secondary market, thus allowing the lender the absorb the loan associated closing fees while still making a profit.

A termed ‘no cost’ program where there are actually closing costs, but where these costs can be paid by the Seller requires the cooperation of the Seller and may require you to pay a higher purchase price for the property so that the Seller still nets-out their required bottom-line amount from the sale of their property (ie: if a Seller would sell their home for $220,000 and you request the Seller contribute $5,000 toward your closing costs, the Seller may consider this if you instead pay $225,000 for the home – but keep in mind, the home must also appraise for the higher amount). As you can see, in either of these cases “No Cost” always has a cost.

As always - Consumers need to have a complete understanding of exactly what options are available and which type of program is most advantageous as a whole. The flat-fee, reduced-fee or no-fee loan option has a place if this type of loan makes good financial sense for the borrower and their specific borrowing scenario. Also, not all lenders are created equal when it comes to how much rate "bump" equals a specified closing cost reduction (ie: does a .25% rate bump always = a $500 closing cost reduction?). Consumers should not assume that an offered rate bump by any one lender is the best available tradeoff of an increased rate versus a certain "flat fee" or "no cost" financing.

Be sure to consult with a reputable/recommended mortgage broker before finalizing any loan scenario. It will always be in your best interest to have an impartial industry professional with an unlimited number of mortgage programs work on your behalf (as opposed to 'selling' you any specific mortgage product).

Hope this helps ... Best of Luck!

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