No Closing Cost Home Loan

Firstly just so you know, the title, "No Closing Cost Home Loan", is slightly erroneous mainly because it is a common term used by many people and so we included it here. The correct name is actually a Closing Cash Saver loan or CCS.

No Closing Cost Home Loans lets people avoid paying the non recurring closing costs of their home loan by selecting a slightly higher interest rate.

By selecting a No Closing Cost Home Loan the borrower receives a rebate that pays the, as already mentioned, non recurring closing costs, allowing them to close the home loan with less money up-front initially.

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The non recurring closing costs for a No Closing Cost Home Loan will include the property title and either all or some of the following:

Assumption Fee
Credit Report
Appraisal
Recording, and Notary Fees
Title Insurance
Escrow Fee
Document Preparation Fee
Tax Service
Property Inspection Fees
Homeowners Assoc. Transfer Fees
Attorney's Fees
Misc. Fees (courier, underwriting, wire transfer, etc.)

These do not recur over the life of the home loan.

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A "No Closing Cost Home Loan" Comparison

Compare Various Home Loans

	No Points No Fees	Option 2	Option 3
Loan Amount	$300,000	$300,000	$300,000
Interest Rate	6.25%	6.00%	5.75%
Points	0	0	$3,000
Base NRCC*	0	$2,800	$2,800
Total NRCC*	0	$2,800	$5,800
Monthly Payment	$1,847.15	$1,798.65	$1,750.65
Savings Per Month	-	$48.50	$96.43
Break Even (BE) (Months)	-	57.73 (4.81 years)	60.15 (5.01 years)
Cost Of Monthly Payments over BE period	-	$103,836.06	$105,301.60
Total NRCC	-	$2,800	$5,800
Total Cost over BE period Includng NRCC (Option 2)	$106,635.97	$106,636.06	-
Total Cost over BE period Includng NRCC (Option 3)	$111,106.07	-	$111,101.60
Total paid after 3 Years	$66,497.40	$67,551.40	$68,823.40
Total paid after 10 Years	$221658	$218,638	$215,878
Total paid after 15 Years	$332,487	$326,557	$320,917

* Non Recurring Closing Costs

No Cost Loan Comparisons

The example indicated above is comparing a typical no cost loan with a zero point loan. We are considering 2 options offered on a $300k loan. The first option is a no cost loan having an interest rate of 6.25%. The monthly payment on this loan would be S1,847.15.

Option 2 is a zero point loan on the same amount with an interest rate of 6%. This would give base non recurring closing costs totaling $2,800 and a monthly cost of $1798.65. To find the break even point on recovering the costs, we take the difference in payments, ($48.50), and divide by the base NRCC of $2,800 to give us 57.73 months or 4.81 years.

The chart is fairly self explanatory and it can be seen at a glance which option is going to be the most cost effective over a certain time period. Certainly if anybody is planning on staying around for a long time, the savings can be substantial. Our brief example shows that it is possible to save almost $12,000 by choosing the right home loan for your circumstances. Similarly, the same loan will lose you money if you are planning to leave and sell the property after few years.

It always worth while doing this simple payment projection exercise for anybody considering financing or refinancing their mortgage.

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