Yale Roth M.A., M.Ed

This mortgage question I get from time to time: “Why do a no closing cost mortgage?

Here’s the answer.

As you may know, to get a no closing cost mortgage, you’re taking a higher mortgage rate and it’s out of the revenue the mortgage lender or bank is getting from the transaction, they are paying your closing costs.  Ok, that sounds good.

So, if you can drop your mortgage rate, drop your monthly mortgage payment and do it with no closing costs, it makes sense.

Your recovery period is 0 months.  Awesome.

So let’s say you’re dropping your mortgage paymentment by $170 per month and it’s not costing you anything.

You’re “in the black” right away as you’re saving $170 per month.

Compare that to taking a lower mortgage rate and even lower mortgage payment.

Let’s say you’re dropping your mortgage paymenty by $250 per month.  However, it’s costing you $5000 in mortgage closing costs to do it.  Your recovery period would then be 20 months.

That means it’s going to take you 20 months to recover the $5000 in mortgage closing costs.

From a recoup closing costs standpoint, that’s not a lot of time.  However, compared to saving $170 month right away with no costs, it may make more sense to take the slightly higher mortgage rate and payment.

To summarize, if you plan on keeping the home for the long term, then taking a lower mortgage rate and mortgage payment with paying mortgage closing costs would provide greater benefit.

If you plan on keeping the home for a short period of time and you can lower your mortgage rate and lower your mortgage payment with no mortgage closing costs, then the no closing cost mortgage would make sense.

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