Are No Fee Mortgages A Good Deal?

Is the no cost mortgage loan a good deal? Well the banks are getting very aggressive with their marketing and making it look like they are giving you the deal of the lifetime. Is it really a good deal?

I was watching TV the other night and came across an advertisement that really caught my attention. It was an advertisement for Bank of America’s no cost mortgage. They were going to pick up all of the closing costs. I thought at first that it was just a 30 minute infomercial. To my shock, I discovered that it was a continuous through-the-night infomercial that seemed to never finish. Wow, that is aggressive marketing and maybe unprecedented by the banking community.

The CEO of Bank of America, Ken Lewis, was quoted in Newsweek as saying – “We want a bigger share of your wallet…..” Well, I guess they really mean it.

Go ahead and give them a bigger share of your wallet. However, you might not be getting the better deal.

I went through the process of checking rates online with Bank of America. The first question was focused on the size of the payment. Then I saw all of the adjustable rate mortgages. It is good that Bank of America is still marketing these risky loans and talking about low payments.

After seeing the numbers and comparing them to a mortgage company where you have to pay fees, it was pretty easy to see where the “no cost” came from. The interest rate was higher on the Bank of America loan. Long-term you are much better off paying the lower interest rate and the closing costs up-front.

Bank of America will tell you this works better if you are only going to be in the house for a short term. Of course, that is the wrong way to buy a house. Home-buying should be viewed as a long-term commitment.

Well, I guess I can sum it up about Bank of America with another quote from their CEO Ken Lewis - “We are close to a time when we will look back and say we did some stupid things.”

No one does anything for free – so here is what you look for:

1) Get an estimate from a no fee mortgage and place it up against a company who charges fee
2) Read the fine print and see where the costs are buried