Who should use no-cost mortgages?

The longer the loan term, the higher the cost
Published on Aug 2, 2004

(This is Part 1 of a three-part series. See Part 2: Why select a no-cost mortgage? and Part 3: Lenders roll out no-cost-mortgage deals.) "Why wouldn't anyone in his/her right mind take a no-cost mortgage if he/she could find one?" Because no-cost mortgages don't eliminate costs, they convert them from costs paid upfront to costs paid over time. No-cost mortgages carry higher interest rates, which may be better for some borrowers, but not for others. "No-cost mortgage" defined. A no-cost mortgage is one on which the lender pays the borrower's settlement costs, with the following exceptions: Per-diem interest, which is interest from the closing date to the first day of the following month, isn't included because it is not known until the exact closing date is set. Escrows for taxes and insurance, which are borrower funds set aside to assure payment of the borrower's future obligations, are not covered because they are not a cost of the transaction. Homeowners' insurance is...