No Cost California Home Loans Are Available.

Pic credit to Suvro Datta


Even with all the recent lending legislation passed recently, borrowers need to compare apples to oranges and know that the no cost California home loan is still available.  In a nutshell the way it works, the lender bumps your interest rate to create a pool of funds which pays for your all the fees and the Loan Originator and lender income.

How much higher is the interest rate with a no cost California home loan?   The are varying factors, but usually the rate is around .50% higher than on a rate where the borrower pays for their fees upfront on a purchase loan or rolled into the loan amount on a refinance loan.  The payment may be a little higher however, there are times when it makes sense to go with the no cost loan.  You have to be able to compare the figures.

How long you intend to live in the property is a factor.  If it’s a short term stay, the no cost loan many times is the better deal.  On a refinance loan it generally takes 7 years to payoff the fees that were added to your loan amount.  The no cost loan rate is higher but your starting loan amount is a chunk lower because there are no fees added to your balance.  Click here to tell me your scenario or keep reading below

Here’s an example on a refinance loan:  $350,000 loan amount based on a 30 year fixed, with fees, at a rate of 3.75% gives a payment of $1,620.90 (principal and interest only).   Based on a 30 year fixed rate loan and bumping the rate to cover fees, which are subtracted from the loan amount, we have a loan amount of $343,000 and an interest rate of 4.125% which gives a payment of $1662.34.

At the end of 7 years on the loan with fees, your balance would be $$299,453.    At the end of 7 years on the no cost loan, your balance would be $296,028.  You’re still $3,425 ahead on the no cost loan, however there’s one more thing to consider.

The total cost of payments looks like this: 84 months at the 3.75% rate payment of $1620.90 = $136,155.       The total cost of payments on the 4.125% rate payment of $1662.34 at 84 months = $139,636 so you’re in the hole $3,481 on the no cost.  But this cost is a wash with the amount you’re ahead on your balance, $3,425 as illustrated above.  So in this case the breakeven point is 84 months or 7 years, and most of the times on refinance loans that’s the way it works out. Want to compare refinance loan figures with fees or no cost? Click here to tell me your scenario

On a purchase it’s different because the buyer has to pay their fees upfront no matter what so the payments using the same loan amount and rates as above, look like this:  $350,000 loan amount at 3.75% 30 year fixed = $1620.90.       $350,000 loan amount at 4.125% 30 year fixed = $1696.27.  That’s $75.37 more per month on the no cost California home loan, but the real take away here is the pool of funds created by bumping the rate goes toward paying the borrowers closing costs!  So if they are short funds, we need to know that upfront at the start of the application process to properly structure the loan but this is a wonderful option for those who can afford the monthly payment of home ownership but just can’t come up with all the funds to cover the down payment and closing costs to get into a home.

The no cost California home loan can be a perfect fit for someone looking to refinance their current home loan or the home buyer.  Do yourself a favor and compare the numbers and take a look and see if it’s best for you.  Click here to tell me you scenario and I’ll get back to you within 24 hours.



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