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“Zero-cost” or “no cost” mortgages, which were popular during the housing boom, and were very poorly regulated. However, today it is a lot more difficult to acquire a “no cost” loan due to stricter disclosure requirements. But, what does one actually end up paying for these appealing agreements? In exchange for taking care of all the third-party fees, the lender increases the interest by a half to five-eights of a percent. In a 30-year-fixed “no cost” mortgage of $300,000, the borrower would save $6,000, get an interest rate of about 5 percent, and pay a monthly sum of $1,610. Whereas, a borrower who chooses a traditional mortgage would pay $6,000 upfront, get an interest rate of about 4.5 percent, and pay a monthly sum of $1,520 saving him about $32,000 over the thirty year period.
The “Zero-cost” mortgages actually have a very high variable cost over the period of the mortgage. A borrower must calculate all of the options before deciding on the type of loan, especially if the borrower does not have a broker. The amount of transparency exponentially decreases when there is no broker involved, because the lenders are not required to disclose how much profit they are making on the particular loan.
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