No Closing Cost Loans
One Fee, Flat Fee, and No Closing Cost Loans are becoming increasing popular. They represent an intriguing idea and depending on your circumstances may be a great option for you to consider for your loan.
Here’s how they work:

If the market rate of a 30 year fixed rate mortgage is 6.50%, and the lender delivers to the investor a loan with a higher than market rate; the lender earns a premium on that loan. That premium can be used to pay all or a portion of your closing costs and prepaid expenses. Here is an example of how that may work:


Let’s say you’re getting a mortgage of $150,000.

At the rate of 6.50% on a 30 year fixed rate loan, the principal and interest rate would be $993 a month.

Normal closing costs on a loan that size will vary somewhat from market to market, but a reasonable average would be around $3,200.

On a NO Closing Cost loan, the interest rate would be 7.00%. At that rate the principal and interest payment would be $1,039, but the closing costs would be zero.

So the trade off is $46 more a month in monthly payment versus $3,200 in additional up front fees.

If you do the math, you would have to live in the house over 70 months; almost six years, to be better off as far as total cost is concerned.

The option looks even better if you consider that because the payment difference is all mortgage interest, it's tax deductible. So the difference on an after tax basis will be even less, maybe a lot less depending on your individual tax bracket. Considering after tax dollars, the time to recover the upfront investment is even longer; therefore, you could take that money and invest it and the option becomes even more compelling.


A One Fee or a Flat Fee loan is a slight variation on this theme. The lender uses a premium from a slightly higher interest rate mortgage to pay most of your closing costs, and they ask you to pay a predictable single or flat fee for the balance.