Bank of American is currently offering "no fee mortgages" that includes no closing fees. What's the catch?

Answer 1

As everyone else mentioned, the difference is in the interest rate, however from what I have seen a lot of times this is still your best option. I'll explain -

They will give you a "higher than market interest rate", typically .25 to .375 percent higher than the current going 30 year fixed rate. In return you pay no closing costs or fees of any kind. If you are planning to keep the loan for a shorter period of time this loan makes sense. If you are looking to keep this loan long term it probably doesn't. I'll give you an example:

On a $150,000 loan, an interest rate difference of .375% will cost you $46.88 per month. You need to shop to find what closing costs in your state and area (they vary all over) will be. If for example your total closing fees would run $3000, you could have the loan for 64 months before it would have made sense to pay closing costs for the lower rate. ($3000 in cost/ $46.88 per month interest cost). These numbers will be different based on your loan amount and the closing costs, but this is the easiet way to decide if this is the right loan for you or not. Hope this helps.

Answer 2

the catch is always the interest rate. Nobody works for free (even though they looooooove to advertise it!) There is always a way that a loan officer will make money, the underwriters, processing, lender, and the title company. All of these people work on closing a home loan.

I work with over 100 banks and lenders, and everyone has a no-closing cost option, and It's just by simply charging a higher rate which in the long run will cost more than just simply having the fees included into the balance.

Answer 3

Every mortgage has fees. Every one. Somewhere there are fees that someone has to pay, such as: appraisal (most of the time), title/deed work, survey (sometimes), lender fees (underwriting, committment, processing), state taxes, county fees (recording, tax), courier/wire fees, etc. By charging a higher interest rate the lender can offset these fees and pay for them instead of the borrower.

Find out what the fees are and what the difference in rate is between borrower paid closing costs and lender paid closing costs. Then decide which is best for you (everyone's situation is different).

Interest, as well as most of your closing costs, are tax deductable.

Answer 4

What the others are saying is absolutely valid. They will increase the rate to pay for your closing costs. They will not give you the best interest rate and lose money.

Is it beneficial?

Yes, in some cases. If you are only seeking a lower mortgage rate and want the no closing costs option because you don't want to increase your new mortgage balance too much, then yes.

If you are doing debt consolidation or receiving cash out then no, it doen't make sense fiscally!

Answer 5

There isn't a catch. My mortgage is with BoA. They've apparently realized that they make enough money under current interest rates, and there's enough competition in the business, that they don't charge you those fees.

It's also nice because when BoA holds your mortgage, you get a plethora of other free services (like the suite of Bank of America Advantage services) including free checking, a free safe-deposit box, free cashier's checks, free money orders, etc.

And I personally believe that Bank of America has THE best online banking tools anywhere (especially since they recently updated their site to let you modify the description of any transaction in your online banking).

Answer 6

They're probably charging higher interest rate.

Answer 7

The interest rate maybe.

Answer 8

There is always a catch, thats all i gotta say. Do your homework on this