Keller WIlliams Luxury Logo
Home » What is a zero or no cost loan?

What is a zero or no cost loan?

by | Jun 2, 2010 | Financing, Hawaii Real Estate, Investing | 0 comments

This is a mortgage without any closing costs added on to the loan or paid by the borrower. Examples of closing costs would be origination fees, discount points, appraisal cost, processing, underwriting fees, title insurance and recording fees. A mortgage where these costs are added in is not a true no cost loan.

How is this possible? With a no cost loan, the mortgage investor increases the interest rate to pay for the closing costs. In essence, the investor “pays for the party” instead of the borrower. For example, a borrower could obtain a thirty year fixed rate mortgage at 4.75% with $3,600 in closing costs and the same mortgage at 5.25% with no closing costs. The difference in the monthly payment would be $68 a month. Even before you consider the time value of money and possible tax consequences; it would take a borrower 5 years to break even. Most mortgage professionals will opt for a no cost loan when doing their own mortgage, unless it is a purchase and the seller is paying the fees.

The size of the mortgage not only effects how much you can save but the final rate and costs. The bigger the mortgage, as long as you stay under the conforming loan limits, the better the price.  Many of the costs for a mortgage, such as appraisal and underwriting, are basically fixed and do not vary with the size of the loan. While title insurance costs will increase with the size of the loan, a $200,000 mortgage will not cost twice as much as a $100,000 mortgage.

Next Week: Seduced by an ARM (Amazingly Risky Mortgage)?

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Your Lender for Life!

Recent Posts

Big Island Featured Restaurant & Activity – October 2025

Big Island Featured Restaurant & Activity – October 2025

Featured Restaurant: Brown’s Beach House If you’re looking for a tasty, elegant, open-air dining experience look no further than the Brown’s Beach House restaurant at The Fairmont Orchid in Mauna Lani Resort. Its Chef de Cuisine, Junior Ulep, is a celebrated...

read more
August Sales Statistics for the Big Island Resort Areas

August Sales Statistics for the Big Island Resort Areas

Real estate activity was spotty during the month of August, but slightly up over the month prior. Mauna Lani Resort led the way in condominium sales with three closings, followed by Mauna Kea Resort with two and single condo sales in Kohanaiki, Kūki`o and Waikoloa...

read more
The Window Buyers Have Been Waiting For

The Window Buyers Have Been Waiting For

Interest Rates, Inventory, and Opportunity Aligned According to the National Association of Realtors, more than 7 million buyers have been sitting on the sidelines, waiting for interest rates to drop into the fives. That moment has now arrived. Through our partners at...

read more
So, You Want a Place on the Ocean?!

So, You Want a Place on the Ocean?!

By Dan Polimino Of course you do! I was meeting with a client at a local eatery and he said to me, “It’s always been my dream to have a place in Hawai`i right on the ocean.” And why not? I mean, it’s one of the reasons why you would move to Hawai`i or own a second...

read more
September 2025 Featured Restaurant & Activity

September 2025 Featured Restaurant & Activity

Featured Activity: Atlantis Adventures Submarine Tour Discover the magic of Kona’s undersea world while diving over 100 feet beneath the sea in an eco-friendly, 48-passenger submarine. Learn about Kona’s marine mysteries in the air-conditioned comfort of this Coast...

read more

Recent Listings

Call Now