No Closing Costs: Is it Too Good to Be True??

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Filed under: Market Comentary

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Have you seen the marketing ploys from mortgage companies that advertise no closing costs? Often, these marketing campaigns target homeowners who are interested in refinancing their mortgage. Don’t be fooled by messages that make claims that are too good to be true, such as “Absolutely No Closing Costs!”

Carefully Crafting the Advertising Messages

Keep in mind that these claims are carefully crafted in a way to promote their service and potentially deceive new customers. It is easy to see why homeowners are confused! Why would one company claim that they don’t charge closing costs when another company will provide a list of closing costs for the mortgage?

Customers make the assumption that they should choose the mortgage company without closing costs. But, they don’t see the whole picture. No matter where you choose to get a mortgage, there will be a fee. Services are being provided, and the company needs to be paid for the transaction.

The Lender is Still Getting Paid

It is impossible to get around some of the standard fees. Examples include title report, escrow charges, appraisals, underwriting, processing, recording fees, and more. These fees are typical to every mortgage transaction, and there is no way to get around these costs.

Remember that there are multiple ways that these fees can be paid in the transaction. These companies that are claiming to charge no closing costs are still getting their money in a different way. Typically the company will use one of these strategies:

• Add to the Loan: Some lenders will roll the closing costs into the loan, increasing the total loan amount. Even though you don’t have to pay closing costs out-of-pocket, you will still pay for those fees through monthly mortgage payments.
• Interest Rate Adjustments: Another way that the lender can get their payment without closing costs is by adjusting the interest rate. These higher rates are disguised behind industry terms that the customer doesn’t understand.

The bottom line: don’t be confused by lenders who claim that you won’t pay closing costs. One way or another, the lender will still make their money on the mortgage. A better solution is to choose a lender that will be upfront with you about the fees. This clear communication is essential when you are making the investment to buy a home.

Do you need help with a mortgage? I am always happy to answer your questions! Contact our team at Franklin Loan Center to learn how closing costs work and the impact they will have on your loan. We are always here to help!

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