There is no free lunch, and there is no true no fee no point program for mortgages. Mortgage brokers and banks expect certain fees and profits: those functions of doing business have been in place for decades. No point no fee programs provide the borrower/home buyer with the option of incorporating fees and points and, in some cases, other closing costs into the mortgage payments and amortizing them over the length of the loan. But whether they are paid up front or part of your monthly check, the points and the fees are generally going to be paid.
Some banks have chosen to eliminate such things as “title search fees” in the interest of competition. When the banker or broker presents you with an itemized list of closing costs, the absence of loan initiation fees may stand out as compared to other potential loans. But the big ticket closing cost items are still present, whether they are flat listed for immediate payment or folded into a thirty year amortization process. A ‘no closing costs’ mortgage can add half a percent or more to your interest rate.
The No Point No Fee Program deserves scrutiny, no matter what bank or credit union is offering it. Bank of America has just introduced a no fee program with a nationwide advertising campaign – and little room for the small print. There will be no fees for escrow, appraisal, title search, etc. However the offer also states that borrowers still are responsible for transfer taxes, recording fees, their own title insurance and legal fees, among other charges. Moreover, the paragraphs at the bottom go on to say that the rates will be “competitive, but not necessarily the lowest.”
What is not mentioned in this offer is what caliber credit rating you must have in order to qualify. The Bank of America is to be commended for attempting to compete with other consumer banks that have had no fee programs for years – but theirs appears to vary little in substance. Interest rates are going to cover the fee structures that have been abandoned as up front costs to the borrower.
What should really be required with no point no fee programs is a transparent presentation of what the loan looks like, with and without payment of traditional fees. Then and only then can the borrower see in what fashion those fees are being paid, or if in fact they have been abandoned.