A no closing cost mortgage is a type of mortgage loan product that can actually eliminate your closing costs all together once you are ready to purchase your home. A no closing cost mortgage can allow you to avoid paying your closing costs and many times the lenders that provide such loans will also wrap in other expenses in terms of fees and other costs when making such a loan. So if this is all true then wouldn’t everyone want to apply for a no closing cost mortgage loan instead of more conventional mortgage loan to save money in the long run?

Well no because no closing cost mortgages are often times just an imaginary loan product that cannot save its borrowers money over time. You may then be wondering if the lender does in fact cover the closing costs of the loan then how can’t a particular borrower not save money if they don’t have to pay for their closing costs and other fees? They can actually end up paying more when all is said and done because the majority of the time the lender will offset the amount of money they pay in terms of closing costs with a higher interest rate.

By increasing the borrower’s interest rate the lender can typically get away with making more money than by just having the person pay for their closing costs. The amounts people pay for closing costs and other fees at the time when the home is actually purchased can easily go into the thousands of dollars for many homebuyers. Due to their significant price, many potential homeowners do not hesitate to jump at a no closing cost offer, and this is a clear example of what the lender wants to happen.

Lenders that provide no closing cost mortgages understand that people will respond to such offers, and they illustrate that very clearly with their advertising. When you see advertisements that make it known that the lender provides “no closing cost”, “no fee”, and “no cost” you can be assured that the lender is just trying to lure you in so that you eventually apply to their lending institution. Once you are ready to apply they will of course emphasize that you will not have to pay any closing costs with their loans and many times this is all it takes for the unsuspecting borrower.

The majority of borrowers are not savvy enough to really understand what is happening when the lender is determining their interest rate and other costs of their loan, and the lender knows this and uses it to their advantage. For no closing cost mortgages the lender will not hesitate to boost the interest rate by a quarter to a half percent without letting the borrower know at all. If it doesn’t cover what the closing costs would have been then they can increase it even more, and if the borrower has credit issues they can increase it even higher and tell the borrower that it is due to their credit problems.

If you do the math then you are quick to realize the kind of shenanigans the lender has been pulling, and often times you will end up paying more if you take out one of these no closing costs loans. The bottom line is that you should never fall for such scams and advertising practices, and while there can be some legitimate no closing cost offers, the vast majority are scams so in the end it is up to you to do your homework and avoid such lenders.