(A) A "no closing cost" loan is a way for banks to make more money off a loan. Instead of paying the closing costs up front, they bump up the rate and make you pay the closing costs back with interest added in for the life of the loan. To raise the rate 3/8 to 5/8 and claim that there will be no closing costs is very misleading, because you will pay back every bit of those closing costs with interest. In the long run, it is better for the borrower to pay the closing costs upfront and not pay extra interest for the life of the loan.
(Q) I heard that you can get a loan with 10% down and no PMI, how can they do that?
(A) A portfolio lender can be a little more creative in their financing because they do not have to sell the loan on the secondary market. A bank that offers a 10% down payment, no PMI mortgage is looking to increase the rate to a point that offsets the absence of PMI. The same effect can be made by doing a "Piggy Back" loan which consists of a 1st and a 2nd mortgage. The first mortgage is for 80% of the sales price and the second mortgage can go up to 15% of the sales price. So in comparison, a "Piggy Back" is a better product due to the fact that you only need to put 5% down instead of 10% with no PMI.
(Q) How can an Adjustable Rate Mortgage (ARM) benefit me?
(A) An ARM is a great way to finance a property that the borrower is planning on selling or refinancing within a certain time period (7 years or less). You save money by paying less in interest due to the fact that the rate is much lower than a fixed rate product. Another advantage is that certain ARM's allow the borrower to qualify for a larger loan amount.
New York State Banking Department
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