Questions & Answers
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Low Cost Loans - Q & A
Q:
What about these ads for no-cost loans?
A: In many states,real estate regulatory
agencies are cracking down on such advertising. The very term, "no-cost"
loan, is misleading because borrowers are actually paying a higher
interest rate in exchange for not having to pay fees or closing
costs up front when the loan is secured.
A "no-points" loan is one for which the lender does not
charge points (one point is equal to 1 percent of the loan amount).
But there are other fees involved in no-point loans, as with most
loans.
Q: Is there such
a thing as a no-cost or no-fee loan?
A: No. While some lenders occassionally
promote "no-cost" loans, banking regulators have cracked
down on these misrepresentations. Advertised "no-fee"
loans may actually cost the borrower more over the long term because
these costs are often rolled into the new note through higher interest
or more principal.
A typical no-feeloan is one where the points charged and all fees
are included in the loan principal, meaning that the borrower does
not pay these expenses at the close of escrow, but instead ends
up paying on them over the life of the loan. The loan is called
a no-feeloan because the borrower is not charged any fees up front.
Copyright 1999 Inman News Features
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