The Truth About ‘No Cost’ Loans from Home Lenders

Mortgage interest rates recently hit all-time lows, falling below 4% for 30-year fixed-rate loans and to around 3.25% for 15-year loans.

If low rates alone haven’t enticed you to purchase a home or refinance an existing mortgage, you might be tempted by the thought of doing a “no cost” mortgage.

But beware: Even if a bank says you’re getting a “no cost” mortgage—perhaps because they are not charging points on the loan—that doesn’t mean the loan itself is truly “free” or is really being offered at zero cost to you.

Banks aren’t in the business of loaning money, and doing all the work required to close a mortgage loan, free of charge. So the truth is that you will be paying in one way or another for the bank’s services, in addition to paying interest on your mortgage.

In general, when you obtain a mortgage, you will actually pay four sets of fees: Lender Fees, Title and Third Party Fees, Escrow and Interest Fees, and Government Fees.

Each set of fees will be outlined in your Good Faith Estimate.

Here are examples of the common fees you might see when you obtain a mortgage — along with estimated costs. These costs can apply to both initial home purchases and refinanced home loans.

Obviously, prices for different products and services can vary based on where you live and other factors. Nevertheless, the numbers presented below will give you an estimate—or in some cases a range—of what you can typically expect to pay for your mortgage.