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My rate is 4.500%. My lender is gonna give me 3.888% with no closing cost, no charge. Whats the catch?

by lvlv2005122 from La Verne, California. Mar 21st 2015 Reply

Sean Young (SeanYoung)
#2 ranked lender in Colorado - 1,112 contributions

They are most likely paying for the closing costs through the interest rate or they may be adding the costs to your loan balance. Not necessarily a catch, more of an option to keep your out of pocket costs down. Keep in mind, regardless of what your lender calls it, you are paying your closing costs. If you add them to your loan balance you are paying the closing costs over the life of the loan, if you pay them through the interest rate you are also paying them through the life of the loan and you could of received a lower rate if you decide to pay the closing costs with cash at closing. No matter what, you pay the closing costs and there are closing costs on every loan. To see if it makes sense for you, just take the savings of doing the loan and divide it by the cost to see how many months it will take to break even. Ask your lender what the rate would be if they did not pay the costs through the rate and see if the payment difference is worth paying the costs out of your pocket. The lowest rate is not always the best option depending on your short and long term goals. Best wishes, Sean

Mar 21st 2015
Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,092 contributions

There is no free lunch. All mortgage loans have closing costs. There are primarily three ways to pay closing costs on a refinance. The first is cash, which almost no one does. The second, and most popular is by adding it to your existing balance. This is more accurately called "no out of pocket costs". The last way is by increasing the interest rate to cover all your closing costs that way. This option may be good, may be bad. It really needs to be analyzed. But the bottom line is simple. Your current lender is NOT doing you any favors for free. YOU are paying...

Mar 22nd 2015
William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,727 contributions

The catch is that 3.888 is not the lowest rate you can get.. your lender is charging you a higher interest so he can use the extra revenue from that rate to pay your closing costs as well as their fee.. there is no such thing as a "No Cost" loan.. lenders, appraisers, title companies, etc.. none of them work for free, so the money needs to come from somewhere.. but make no mistake.. it's YOU that's paying.. either by paying a higher than "Par" rate, bringing cash to the table, or adding fees to your loan, but it's always you paying.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714

Mar 23rd 2015
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