zero cost loan
A popular advertising hype for a mortgage loan with no costs to the borrower.The reality is that the borrower pays a higher than normal interest rate on the loan. The normal loan expenses, including the profit to all the intermediaries, are paid out of the higher yield.This could result in dramatically increased overall mortgage costs.
Example: The table shows a $150,000 loan at 7.5 percent interest on a 30-year amortization with the borrower paying all closing costs and expenses and a $150,000 loan at 8.5 percent interest with no costs at closing.
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