No-Closing-Cost Mortgage: You Pay One Way or Another

A no-closing-cost mortgage can save you money upfront but cost more over the long term.
Barbara Marquand
By Barbara Marquand 
Updated
Edited by Mary Makarushka
1086574458

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With closing costs ranging from 2% to 6% of the loan amount when you're buying a home, a "no-closing-cost" mortgage may sound like the ultimate money saver.

But the closing costs don't vanish. Instead of paying a lump sum at the closing table, you pay over time.

A no-closing-cost mortgage might be a sensible choice in some cases but an expensive move in others. Here's how to figure out whether a no-closing-cost mortgage is right in your situation.

How a no-closing-cost mortgage works

Did you know...

Closing costs are the expenses and fees for services required to finalize a home purchase. When buying a home with a mortgage, they include a lender's origination charge and fees for the appraisal, title insurance, government recording and other services.

There are two ways a no-closing-cost mortgage is structured:

The costs are added to your loan: You finance the costs as part of your mortgage and pay for them, with interest, over the full loan term, such as 15 or 30 years.

The costs are covered through a higher interest rate: In exchange for covering the costs, the lender will charge a higher interest rate on the mortgage.

Either way, you'll pay for the closing costs through a higher monthly mortgage payment.

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