How does a “no closing cost” loan work?
In the typical scenario, the borrower pays an above-market interest rate for a “no closing cost” loan — a higher rate than for a loan with closing costs. The lender rebates a “yield spread premium” or “negative points” to the mortgage broker, to cover the closing costs and the broker’s fee.
A “no closing cost” loan may, in fact, result in the borrower paying far more in closing costs than if he simply paid them at closing or rolled them into the loan amount. It’s often a bad deal for the cash-strapped borrower who takes it. You’ll find no hint of that on Lenox’s Web site.
Lenox Financial Mortgage and other dishonest mortgage brokers look for suckers who believe that they’ll “never pay a nickel” in closing costs. Not true. The borrower always pays closing costs, in one form or another, at closing or after.
Take a look at Lenox’s description of a “no cost purchase and refinance:”
Thousands of people are taking advantage of a new concept in refinancing and purchasing. Why pay closing costs when you don’t have to? Lenox Financial understands the benefits of this and is helping homeowners around the country.
The way it works is simple. Our company has created such a high volume through our investors that they are willing to pay us more for your loan than any other brokerage firm. This is typically enough money that we can pay your closing costs and still have money left over for our company as well!
After refinancing with most lenders you will roll thousands of dollars in closing costs into your mortgage that will take you decades to pay off. Why do this when you can start saving money today? It’s a no-brainer!
Investors pay more for your mortgage because Lenox sells them a lot of mortgages, and not because the mortgages carry a higher interest rate? If you believe that, then you’ll believe that the tooth fairy pays your closing costs, and you’re dumb enough to be the perfect Lenox borrower.
No-closing-cost loans are popular and may benefit some borrowers. If you want that type of loan, get it from one of the many lenders whose advertising doesn’t mislead you about the costs.