When it comes time to buy a home, there are a number of mortgage types you might consider, and that includes no fee mortgages.
No fee mortgages are advertised as a way to save money on mortgage costs. While they can be a great fit for certain home purchases, they’re not without their drawbacks, and it’s important to understand both the pros and cons before you commit to this type of loan.
So what, exactly, do you need to know about no fee mortgages to determine whether this type of loan is the ideal option for your home purchase? A recent article from realtor.com outlined important things to understand about no fee mortgages, including:
- They typically have higher interest rates. While these loans may not have some of the typical upfront fees associated with a mortgage — like lender fees and closing costs — those savings come at a cost, which is almost always in the form of a higher interest rate. In the end, this could cost you more over the lifetime of the mortgage.
- There are some fees. Again, no fee mortgages help to eliminate many upfront fees. But most of the time, there are additional fees hiding in the fine print to cover the cost of things like credit reports and recording fees.
- They make the most sense for short-term purchases. As mentioned, no fee mortgages save money on the front end, but because interest rates are higher, they are generally more expensive overall. That’s why these types of loans make the most sense for people who aren’t planning to stay in their home long, who plan to refinance rather quickly, or who don’t mind paying more over time if it means they can avoid covering upfront costs.