Anchor Intro: Maybe youíve seen the ads online or on air. Low-cost, even no-cost mortgages. Homeowner help or advertising hype? Bankrate.com finds out.
Voice over 1: Whether itís new or a refinance, getting a home mortgage is more than a hassleÖitís expensive. According to the Department of Housing and Urban Development, lender fees alone on a $100,000 mortgage average $3,000.
Voice over 2: That cost concern isnít lost on the mortgage industry, of course. One reason why youíre now seeing a flurry of advertising offering low or no-cost mortgages. But is there really help behind all the hype?
Voice over 3: To find out, youíve got to understand how banks and other lenders make money on mortgages. One way is closing costs: origination fees, application fees, processing fees -- the list is long.
Voice over 4: But lenders also make money on the interest rate: the higher rate you pay, the more they make.
Voice over 5: So if the lender promises low closing costs, but then they raise the rate on their mortgage, you could end up worse off.
Voice over 6: Say you borrow 200 grand on a 30-year mortgage. Get a 6.5 percent rate, you pay $255,000 in interest over that 30 years. Pay 7 percent, you pay $279,000. So paying a reduced rate of $395 in fees costs you $24,000 in interest.
Standup: Before you respond to an ad for low or no closing costs, do the math. Better idea? Shop for the lowest interest rate, then pit lenders against one another to negotiate fees as low as possible. For Bankrate.com, I'm Kristin Arnold.