In order to be competitive, a number of mortgage companies are now promoting so-called "no fee" home loans. According to advertising from a number of loan companies, you can obtain a loan where you only pay the loan's interest; there are no additional fees when you close. Can you really save by applying for a no fee home loan?

As usual with this kind of advertising, the answer is "maybe, or maybe not." A lender is not going to simply cancel charges that can add up to almost 3%-5% of the loan amount. Any company that just eliminated a revenue source would soon go out of business, as those fees contribute to their profits.

How do these mortgages work? The loan company will charge you a higher rate than a company that itemizes closing costs will. Their profit has to come from somewhere; it will come from raising the price to borrow the money. That is not necessarily a bad thing; it means that they are charging you differently. The company may earn some additional money by selling your home loan to a different company later. The increased interest rate may make the loan more attractive to buyers on the secondary market.

How does this affect you, the buyer? As with any loans or anything else that you buy of value, you should compare lenders before settling on a lender. Each company is going to have different ways of making their revenue; some will charge increased rates, others will charge higher fees at closing. The only way to tell who is offering a bargain is to compare the costs of all the mortgage companies and do the math. Only when you look over everything, including how much money you will pay over the life of the loan, will you be able to tell who is providing the lowest cost.

Is the offer a scam? No, but it might be rather deceiving. You are not actually paying less money, but the claims makes for good advertising. The lenders, through their advertising, want you to think that you are paying less, as suggesting that there are no fees might make you think that you are paying less money. Clever consumers always know to be suspicious when an advertisement seems too good to be true. Anytime you think about taking out a home loan, you should compare all of the estimates from all of the lenders you meet with in order to find the deal that works best for you.




©Copyright 2007 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm with a number of informational Websites, including HomeEquityHelp.net, a site with information regarding home equity loans, mortgages and lines of credit.