Custom Mortgage, L.L.C.

Most people think that a "no-closing costs" option means you actually pay no costs. This is completely untrue. Closing costs traditionally include appraisals, processing/underwriting fees, title insurance and recording fees. These fees are constant and get charged on each and every loan. The question is who pays for them?

Here is how it REALLY works.

You have options:

1. You can pay them out of pocket, or
2. You can roll them into the new loan, or
3. We can pay them for you!!

The first two options are pretty simple. The third is where people get confused. When a broker pays your costs, they are actually paying the same dollar amount of costs that you are, on average about $2500. But where does that money come from?

Here’s what happens:

As a Broker, the Bank pays us (Yield Spread or YSP) to bring your loan to them. The amount of money they pay us for your loan is based on the rate we give you. Naturally, the higher the rate we give you, the more money we get paid. The reason for this is because the higher rate you pay, the more interest the Bank makes, therefore they can pay us more money.

When a broker says "no closing costs", what they are really saying is "we are going to give you a higher rate, so the lender pays us more money, and we will then credit the costs out of that money".

So now that you know what really happens, which choice is right for you?

Let me give you an example:

	No closing costs Option	With closing costs Option
Property Value:	$375,000.00	$375,000.00
Loan Amount:	$300,000.00	$300,000.00
Mortgage Interest Rate:	6.250%	5.875%
Term (Years):	30	30

Terms (months):	360	360
LTV:	80.00%	80.00%

Monthly Payment:	$1,847.15	$1,774.61

Difference in Payment:	$72.54

Months to recuperate to $2500 in closing cost	35

So what you have to determine first is do you think you will sell you house or refinance you mortgage within the time it takes to recuperate the costs, which in this example is 35 months. If the answer is yes, or maybe, which most people do, the best financial advice is to take the higher rate and let us pay the costs, because you will never recuperate the money. If the answer is no, you will not sell or refinance, then the best answer is to take the lower rate and either bring the money to closing or roll the costs into the new loan.

If you would like us to look at your specific situation, call one of our Licensed Loan Specialists.

Note: the above example is not a quote, and until your situation is evaluated we can cannot guarantee any rates or any programs.