Traditional Mortgages vs. the No Cost Loan

The Traditional Approach

Most of the advertisements and interest rates you see quoted assume you, the borrower, pay the industry-standard 1% Loan Origination Fee plus Closing Costs.  By Buying Down the Rate in the traditional way, you benefit by obtaining the lowest rate available at that point in time.

The downside to this approach is you typically incur several thousand dollars in points, fees, and closing costs which you either have to pay in cash at closing, or increase the amount of your loan balance to pay them.  Furthermore, should interest rates drop after your loan has closed, the only way you will be able to lower your rate again is by paying the these costs a second time.

The No Cost Alternative

In many situations, you can opt for a No Cost Loan instead of incurring the various types of closing costs described above.  Simply put, a No Cost Balance Transfer or Purchase allows you to obtain a loan without paying any points, origination fees, or closing costs of any kind.  There is no catch, you pay absolutely nothing and we do not roll anything into your loan balance or increase it in any way.

You immediately take advantage of a lower interest rate and monthly payment, and you breakeven on day one.  In addition, with our “Streamline Process” you can transfer your loan balance to a lower rate whenever rates drop– again at No Cost.  A Vertex Financial Group Advisor will contact you when rates drop and another No Cost Balance Transfer may be in your best interest.

Which Approach is the Best?

The interest rate you acquire depends upon many factors: loan type, loan amount, credit rating, and most importantly, the costs you pay.  Generally, the more costs you pay the lower your interest rate.  But does it make sense to pay costs to “buy down” your interest rate?  The answer to that question depends primarily on the length of time you intend to keep the loan, and the anticipated direction of interest rates in the future.

With the No Cost Loan you breakeven on day one.  Once you incur costs, however, a breakeven point must be calculated to determine the length of time you must keep the loan for the accumulated monthly savings to offset the upfront costs.  The more costs you pay, the longer the breakeven point.  With the No Cost Loan, in a falling rate environment the No Cost Streamline Process allows you to follow market interest rates lower.  If you initially choose to buy down your rate, the only way to drop your rate again would be by paying closing costs a second time.

Since no two situations are exactly alike, it is impossible to give a blanket recommendation as to which approach is the best.  Personal goals, objectives, and timeframes all play a factor in determining the proper approach

Your Vertex Financial Group Advisor can help you determine the best option for your situation.  Call us today, or submit a Refinance or Purchase inquiry online and we will provide personal service and expert financial advice to help you determine which strategy best suits your goals and objectives.