Why select a no-cost mortgage?

Loans provide protection from lender overcharging

(This is Part 2 of a three-part series. See Part 1: Who should use no-cost mortgages? and Part 3: Lenders roll out no-cost-mortgage deals.) A no-cost mortgage is one where the lender charges a higher interest rate in exchange for paying most of the borrower's settlement costs. In last week's column I gave two reasons, in addition to being short on cash, why a borrower might find a no-cost mortgage advantageous. One is that the borrower does not expect to have the mortgage very long, in which case he won't be paying the higher rate very long. A second reason is that the no-cost mortgage provides protection against being overcharged at the settlement table. Why no-cost mortgages protect against being overcharged: In selecting a loan provider, borrowers typically shop for rate and points, ignoring other settlement costs. They usually find out about these costs after they submit an application, and then they receive "estimates" that are subject to change. This provides lenders with ...