The No-Cost Loan allows you to obtain a loan without paying any points, origination fees, or closing costs* by incurring a slightly higher interest rate at the time of closing. The rate is typically only 1/4 to 1/2 of a percent higher than with a traditional loan. When paying any costs associated with a loan, there is always a period of time before you breakeven – this is determined by the length of time you must keep the loan for the accumulated monthly savings to offset the upfront costs. The more you pay in costs upfront, the longer it will take to reach that breakeven point. On average, the breakeven point can be anywhere from 5-7 years. Considering the average person will either refinance or sell their home within 4-7 years, (potentially more frequently in a falling interest rate environment), the no-cost loan can save you money.

Benefits of the No-Cost Loan:

1. There is no time needed to recoup the costs associated with the loan.
2. You can avoid incurring several thousand dollars in points, fees, and closing costs which are either paid in cash at closing, or through increasing the amount of your loan balance.
3. If interest rates drop after your loan has closed, you can refinance without worrying about recouping the costs you paid on the previous loan.

Draw Backs:

1. A slightly higher interest rate at the time of closing.
2. Not available for all loans.

* Monies associated with prepaid taxes and interest are not considered a cost of closing the loan, and are paid for by the borrower.