Free Financing?
Keywords: finance.financing, zero down, no cost loans, loan, lending, refinance, refinancing
Nothing in this world comes for free. Same goes with finances. Strictly speaking, “no cost finance” does not exist for all types of loans but some loans are “no cost” because the lender pays it on the behalf of the borrower and the borrower repays it over the period of loan with a part of the margin.
Whenever you go for some finance you have to pay title underwriting, insurance, processing fees, escrow fees, recording, loan documents etc. are included in financing closing costs. Then the question arises where from this no cost financing which some companies are offering coming from?This is due to the yield spread or the rebate the lender gives you.
Now let us see how this thing works out. You can have your finance from many sources like commercial banks, mutual banks, mortgage companies, etc. they offer their customers a wholesale value interest rate.
If the customer applies for a loan with a higher interest rate than this rate that is the whole sale rate, then the lender pays the customer or loan originator a fee called yield spread or rebate.
There are many homeowners who do not have ready cash in hand. They are unable to pay the costs of conventional refinancing or even direct mortgage brokers. These customers are approached with this “no cost” options by the lenders.
The point that should be considered that does “no cost” refinancing keep up to their promises? It is common thing in life that things, which sound too good to be true, are actually not.
Actually the thing that happens is these schemes have lot of hidden charges which are quite steep. Most of these financing companies opt to charge the customers between 1/2 a point to 5/8 of a point more interest that a customer will pay for a full cost loan.
In such cases, we should not go for a “no cost” refinance.
Whenever it is advantageous we should take advantage of a “no cost” refinance. There are many cases where the current interest rate is significantly higher than the current refinance rate. In such cases you should be going for refinance scheme to take the most out of it.
This type of financing may also be very useful for people who are planning to take the loan for a short period of time for living in their house.
The customers who are not sure of their loan period can also opt for this “no cost” refinance option. But they should have an option to refinance their loan later, if they plan to increase their loan period.
Many borrowers consider the “no cost” refinancing option as they think they cannot afford the normal refinancing schemes. A piece of advice for them, they should do a little research and go for the best offering on “no cost finance”.
The loan originators who go for this refinance option should make sure that they are getting the correct options. They should be aware of the hidden cost of the schemes to avoid unpleasant surprises that may come up later.
The customer opting for these schemes should not be required to pay lender fees or settlements as this will affect the cost of their loan. The escrow costs and per diem interest would be paid by the borrower.
These are the different prose and corns of the “no cost” refinancing schemes available in the market which a borrower should know before opting for these schemes.
Greg Lucas is a small business owner and an on-line marketing expert who owns and operates a large network of informative and educational websites. for more information please visit:
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