Ask which costs are covered, and how
A lender credit tied to a higher rate can cover eligible closing expenses. A lender may also absorb selected charges outright. Those are different arrangements with different long-run costs, and the phrase “no closing cost” covers both.1
On a refinance
Closing costs, prepaid taxes and insurance, and deposits for the new escrow account can often be included in the new loan amount. That can let you close without bringing money to the table — subject to available equity, loan limits and program rules.2
On a purchase
Taxes, insurance and escrow deposits generally add to the cash you need at closing, on top of your down payment. Seller concessions, lender credits or other assistance can cover some or all of those amounts, within program limits.1,3
Costs rolled into the loan increase the balance you repay with interest. Lender credits may come with a higher rate. Compare the rate, the loan amount and the total costs — not just the cash due at closing.1,2
Where the two lines cross
Compare costs over the period you actually expect to keep the loan, including any financed fees and the higher interest expense that comes with them. A future refinance is not guaranteed, and a plan that depends on one is not a plan.1
A fair question to put to anyone quoting you: “Show me this same loan at par, with the points, and with the credit — and what each costs me over five years.” Any loan officer who cannot produce that comparison is not really quoting you.
Sources
These references support the factual explanations above. Where this page states a preference rather than a fact, it says so — those are our editorial judgement, not a claim that any one channel always costs less.
Next
Every rate has a pricePar, discount points and lender credits — the trade between up-front and over time.Which mortgage fees are worth questioning?Some closing costs buy a service. Others are overhead with a name on it.The whole argument, in one place
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