May 15, 2017
Orion’s brokers know that a mortgage isn’t free. There are fees associated with obtaining a loan, and any retail lender advertising “This loan won’t cost you a cent” is not entirely truthful. Yet our brokers must compete. Closing costs usually total thousands of dollars. Besides writing a check to pay those fees at the closing table, there’s another way to pay them when a client refinances their mortgage: by adding them to the loan amount. The result is called a no-closing-cost refinance. Brokers will explain that the trade-off is usually a higher interest rate if a client is not paying out the closing costs up front.
No-closing-cost mortgages are attractive to borrowers who don’t have the cash to pay fees upfront. Waiving the closing costs may be the ticket to getting a mortgage for a new home or a refinance. Experienced brokers will usually tell a client that if they don’t plan to stay in their home for more than five years, a no-closing-cost mortgage could make sense. The slightly higher mortgage rate associated with a no-closing-cost mortgage is likely to be less expensive over five years than what the borrower would pay upfront in closing costs. Paying a slightly higher interest rate to forgo closing costs may also make sense if the client needs the cash to do renovations on a home.
When doesn’t it pay? If a client plans to stay in their home more than five years, a no-closing-cost loan likely will end up costing them more than a loan with closing costs. That’s true whether they’re taking out a mortgage for a new purchase or refinancing an existing loan.
As noted above, loans are not free. Fortunately, Orion offers various programs, pricing, and services for our brokers that appeal to various borrowers. And we offer a variety of pricing options for every loan: ask our AE about those options. It’s up to consumers to decide if the trade-offs make sense.