No closing cost mortgages are typically desirable to borrowers with little money to bring to closing. The term is a bit misleading as there is always a cost to lending. However, the method those expenses are recovered by a mortgage company can be structured in different ways. The following is an overview of Palm Beach FL no closing cost mortgages, a few important facts, and how it compares to other types of programs.
What Are No Closing Cost Mortgages
Fees exist with all loans because lenders must cover the cost of issuing loans, paying brokers, etc. In a traditional mortgage, the specific fees are outlined and listed as closing costs. However, not all borrowers have the money to cover these up-front fees. No closing cost mortgages were created to minimize this situation.
There are two ways that lenders are able to offer no closing cost mortgages. The first is to charge an increased interest rate, allowing them to recoup the fees gradually. The second is to add the closing fees into the principal amount of the loan.
Benefits And Risks
Whether to select no closing cost mortgages should be based on several factors. If you intend to pay off your mortgage within a few years, then it can be a good option since you would be paying the elevated interest rate for a short period of time. This can be applicable during times where interest rates are high but are likely to decrease in the future or if you plan to sell your property in a few years. On the other hand, if you plan to keep a mortgage for for its full term, then the cost of an increased interest rate over the years can be significantly more than merely paying the closing costs in one lump sum.
It is important to note that no closing costs does NOT mean that money will not be required at closing. Closing costs are used to describe only certain charges. Other amounts due, such as property taxes, fall under the category pre-paid items. They are not put in the closing costs category and will therefore still be required at closing.
Palm Beach FL No Closing Cost Mortgages
Palm Beach FL no closing cost mortgages may or may not be the best option for your particular situation. To make an informed decision on what financing program works best for you, evaluate the interest rate and fees for each loan. Also analyze how long you expect to have the mortgage and the financial impact over time. All of this data may be obtained by requesting a good faith estimate provided by lender.