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Low Cost Loans - Q & A
| Q: |
What about
these ads for no-cost loans? |
| A: |
In
many states,real estate regulatory agencies are cracking down on such
advertising. The very term, "no-cost" loan, is misleading
because borrowers are actually paying a higher interest rate in exchange
for not having to pay fees or closing costs up front when the loan is
secured.
A "no-points" loan is one for which the lender does not
charge points (one point is equal to 1 percent of the loan amount). But
there are other fees involved in no-point loans, as with most loans.
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| Q: |
Is there
such a thing as a no-cost or no-fee loan? |
| A: |
No.
While some lenders occassionally promote "no-cost" loans,
banking regulators have cracked down on these misrepresentations.
Advertised "no-fee" loans may actually cost the borrower more
over the long term because these costs are often rolled into the new
note through higher interest or more principal.
A typical no-feeloan is one where the points charged and all fees are
included in the loan principal, meaning that the borrower does not pay
these expenses at the close of escrow, but instead ends up paying on
them over the life of the loan. The loan is called a no-feeloan because
the borrower is not charged any fees up front.
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Copyright 1999 Inman News Features
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