The Money Source Inc.

Has anyone financed a mortgage with this lender? They have a no closing cost FHA loan that results in a slightly higher rate of 4.2% for a 30yr fixed. What am I missing here regarding the closing cost? Are smaller banks willing to give up all those closing costs to actually sell you that loan?

gpoint

in Financial Services 13 years and 4 months ago

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housepoor | 13 years and 4 months ago

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You can think of it as a bond that pays a fixed coupon. If the market thinks 3.9% is the right rate for that bond — neither too high nor too low — then it would trade at par (eg 100). But if the rate is 4.2% when the equilibrium market rate is 3.9%, then that bond would sell for above par since the rate is higher than market. The broker is essentially buying the bond (in this case in the form of a mortgage) from you at par and selling it above par. So instead of getting fees or points, they get paid via realizing the premium and you get to pay an above market rate. blknite had it right — its like points in reverse.

daveinbedstuy | 13 years and 4 months ago

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Most 3.9% 30 year quotes are “no points” now.

Bklnite | 13 years and 4 months ago

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Think of it as the reverse of paying points. When you pay points, the bank quotes you a lower rate but they’re basically lending you less money so the APR higher. In the “no closing cost” loan the lender is doing the math to come up with the higher rate so they profit as least as much as they would if you paid them the fees and paid the prevailing rate.

daveinbedstuy | 13 years and 4 months ago

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You should be able to get 3.9% or lower for owner occupied single family.  That uptick in rate is very expensive.  Do the math between the two.