For over 15 years in the industry of mortgage, no closing cost mortgages have existed, I still remember I was acquainted to them at the early 1990s. As if it were new or unusual which it is not, you often hear this loan product to be referred to recently available. During the refinance markets of recent years as a result of swelling property values and the consequently increasing amounts of the loan, no closing cost refinance loans have gained popularity across the country.
Today, lenders are appropriately under increasing scrutiny and consumers are now leery of all seemingly questionable lending activity, due in part to unscrupulous lending practices occurring in the sub-prime market. So now consumers are on guard and looking for misleading information being dispensed by lenders for being given the current state of high alert in the lending industry in general. Anyway there shall not be much attentions given into the area of no cost loans if you, as the borrower/consumer, are paying attention and doing your homework to ensure that the mortgage of the no closing cost is a) what you definitely want and b) what you are really obtaining from your lender and you just have to be fine.
The Definition of Loan Costs
Once you learn a little loan lingo along with some mortgage industry terminology, no closing cost mortgage are also referred to as no point, no fees loans (a more accurate descriprion) or the refinance of no cost mortgage which is very simple to comprehend. First it is vital to understand that all loans have costs connected with them and these costs usually fall into three main groups :
Points – are actually a loan`s pre-paid interest. They frequently called as origination fees and discount. The origination fee goes to the broker or lender who processes the loan while discount fees are points paid to the lender who actually funds the loan. For instance, one point is the same with 1% of the amount of the loan, so 1 point from a $300,000 mortgage is $3,000 and 2 points from it is $6,000. It is an easy concept.
Non-recurring Closing Costs (NRCCs) – these include recording fees, notary, escrow, title, credit, appraisal, as well as the lender “garbage fees” that can include : processing fees, administration fees, underwriting fees, document preparation fees, and the like. In this category, points can also be included as well. These are fees that are connected instantly with getting the loan and are fees you wouldn`t be defraying for outside the process of the loan. The total amount may also be referred to as a borrower’s base closing costs, when points are excluded from this figure.
Recurring Closing Costs – they are your existing insurance, property taxes, and current mortgage interest. These are some of the fees that you have to pay whether or not you applied for a new loan and are not real costs of getting a loan but might be needed to be defraud at closing whatever happen because of timing of the closure of the loan and by the time these costs would usually have to be paid. I definitely suggested defraying these costs out of pocket because not to do would mean financing home proprietors insurance (costs which are already due and payable and you should have budgeted to pay for anyway), property taxes, and any pro-rated interest over 30 or 15 years at a big interest.
