No cost out of pocket purchases
A no closing cost out of pocket option can work extremely well
when the rate market is declining and the borrower may anticipate refinancing
fairly quickly. No closing cost out of pocket loans can be used effectively to
free up more cash for repairs or other uses.
Potential tax implications - Purchases and paying points
While tax deductibility is an important factor, paying points
is only one consideration for a borrower. Paying points up front to secure a low
rate, in a steadily declining interest rate market, may be simply throwing money
away. If the borrower decides to refinance shortly after a purchase, the points
and costs paid up front will be a wasted expense. A no closing cost out of pocket
loan will not have points, and thus no deduction for that cost. Additionally,
the other costs are paid for and no deduction is available.
Are there added costs involved with no closing cost out of pocket loans?
No cost out of pocket loans always carry a slightly higher rate than
a loan that does not pay all or some of your closing costs. In general, a no cost
loan is the better strategy if you plan to keep your loan for the next year or
two. Longer than that, you may want to consider paying the costs yourself to get
a lower rate since over time the lower interest rate will save you more money.
And if you plan to keep the loan for four to five years, it often makes sense
to pay closing costs and points to get an even lower interest rate.
The simple way to understand points is this; points (one point is equal to 1% of your loan amount) are money you pay to BUY a lower interest rate - it's as simple as that.
If you have enough equity in your home, you can include the points in your loan amount. Your Loan Agent can help you determine what method is most beneficial to you.
Apply for one of the no-cost out of pocket loans and all your 'non-recurring'*
costs will be rebated at the time of closing.
All no-cost loans, regardless of the lender you
use, require payment of 'recurring'** costs at loan closing.
|* Non-recurring costs (rebated)
||** Recurring fees (not rebated)
Loan Originator fees
Credit and appraisal fees
Mortgage insurance (if applicable)