Settlement costs guaranteed
No-cost mortgages in refinancing: In last week's column I explained that no-cost mortgages are a good deal for refinancing borrowers who don't expect to have their mortgage very long, and therefore won't be paying the higher rate very long. No-cost mortgages can also protect refinancing borrowers against being overcharged at the settlement table because the lender committing to no-cost at the outset has no opportunity to raise costs later in the process.
No-cost loans used to refinance are widely available because most lenders are prepared to assume full responsibility for settlement costs. Most of the settlement costs on a refinance are lender fees, and the third-party services that generate charges (such as appraisal or credit) are often waived. Guaranteeing settlement costs involves little risk.
On home purchases, in contrast, only one lender will guarantee settlement costs. Home purchases involve a number of third-party charges that lenders may have difficulty in pricing. The only lender who will guarantee settlement costs on a home purchase is ABN AMRO at www.mortgage.com.
Assuming you meet their underwriting requirements, finding a no-cost fixed-rate or balloon mortgage on www.mortgage.com is a snap. While AMRO does not quote rates on no-cost loans as such, you can find your own from their price tables. The top line in the price table for each type of loan shows their highest rate and lowest total cost. The total cost can be negative if the credit offered as quid pro quo for the highest rate more than covers total settlement costs.