Things to Consider With a No Closing Cost Mortgage
You can use different mortgage calculators to determine if a no closing cost mortgage is right for you but there are also some other things to consider.
Do You Have Enough for Closing Costs?
Many people are only eligible for a loan if they can agree to have a certain amount for a down payment. This can be the bulk of savings for many people and there just isn’t enough to pay for closing costs. Instead of having to dip into an emergency fund or savings, a no closing cost mortgage may be the only way that you can go through with the purchase. If this is the case, you have to decide if the price of this type of mortgage is right for you or if you should save more before you purchase a home.
How Long Will You Be in the Home?
This can help you determine the break-even point of how long you will be in the home with the added monthly payments. If closing costs are $10,000 then it may take you about 8.3 years to break even. After this, you are paying more than if you would have just paid the closing costs upfront.
Is There an Early Repayment Penalty Clause?
If you decide to go the higher interest rate route while thinking that you can pay off the loan ahead of the break-even point, you need to check if this is an option. Many mortgage contracts have a penalty for the early repayment of a loan. If your lender does have this, it could make it harder to avoid paying closing costs upfront and avoid paying even more over the course of the loan.