Getting something for low or no cost certainly sounds appealing...especially when what you're getting is a mortgage. But are the no-closing-cost mortgages you see advertised really no cost?
Opportunity Cost? The 0.5% rate difference on a $200K loan will cost approximately 2 points, or about $5,000 at closing. Earn 8% compound interest on the $5,000 over 30yrs equals $54,678.65. Just know both sides of the story. If you only earn 5% on the money, it's $22,400.
Good report, BUT in some cases this does make sense. The average homeowner refinances or moves every 7yrs. In this or other cases where your going to be for a short time in this home, it MAY be worth it.
But if your settling down and plan on havong a family and living there for years, then yes, pay a point a get low interest rate in the long run it'll be cheaper. Always ask for a total costs comparison over x amount of years.
Opportunity Cost? The 0.5% rate difference on a $200K loan will cost approximately 2 points, or about $5,000 at closing. Earn 8% compound interest on the $5,000 over 30yrs equals $54,678.65. Just know both sides of the story. If you only earn 5% on the money, it's $22,400.
rmporcelli 2 years ago
Good report, BUT in some cases this does make sense. The average homeowner refinances or moves every 7yrs. In this or other cases where your going to be for a short time in this home, it MAY be worth it.
But if your settling down and plan on havong a family and living there for years, then yes, pay a point a get low interest rate in the long run it'll be cheaper. Always ask for a total costs comparison over x amount of years.
msanchez007 3 years ago
Dead on perfect! One of the BEST news reports I have ever seen about the "no closing costs" misconception.
reibroker 4 years ago