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The Truth About the BofA No Fee Mortgage Plus loan
There has been plenty of hub hub lately about BofA’s new No Fee Mortgage Plus loan. The Truth About Mortgage had this article, Zen Personal Finance wrote this post, and Matt Carter of Inman News adds his own take.
And if you watch CNBC in the mornings, you’ll see rubber lips, the Countrywide guy, performing the same sleight of hand. And hey, no one can do you up like Countrywide can. (I always imagine Anthony Mozillo laughing as he dumps hundreds of thousands of shares of CW stock. Can you say insider trading? …but I digress).
So I thought this would be a really good time to lend some clarity to the subject of no cost mortgages
IS THERE A FREE LUNCH?
Only at the soup kitchen. But let’s get one thing straight. There are no free mortgages.
There are loans without any up-front fees. That’s different; we’ve been doing that for years. But free loans? Nope. Nunca.
You will always pay to obtain a mortgage. If you’re not paying up front for your appraisal, credit, underwriting, processing, and points, then one of two things is happening. Either the fees are being added to the loan balance, or the fees are being added to the rate. To illustrate this, let’s have a look at BofA’s latest offering.
BofA NO FEE
I called to inquire about refinancing my home. Oops, the No Fee program doesn’t apply to refinances. Oh, and you have to be a BofA customer and pay of all those banking-related garbage fees to get the deal. Ick.
But what about the rate? BofA will give you a conforming 30 year fixed rate for 6.25% with 1.001 Points. Wait a minute, points? I thought this was a No Fee loan? Apparently, in BofA’s world, points are not fees.
So how does this quote compare to a typical market deal? No difference.
It may not be common knowledge to consumers. But when putting less than 20% down on a conventional loan, anybody can do a single loan and not pay for mortgage insurance. It’s called lender-paid mortgage insurance. Rather than collecting a premium for a third party MI company, the lender charges a higher interest rate and self-insures against the potential loss. It just isn’t used much because mortgage insurance is temporary and the higher rate is permanent.
CAVEAT EMPTOR
So BofA’s program isn’t a bad deal, it just isn’t anything special. Here’s the kicker. I went back to their website and punched in my purchase with a full 20% down. The rate and points were the same as they were with 10% down! I should have been offered a lower rate without the lender-paid MI, but that didn’t happen. So then I get way overcharged, and BofA cleans up.
Intentional or accidental? Who knows. But watch out and let the buyer beware.
Leave a comment below.
Got a question or need a quote? Shoot me an email.
May 17th, 2007 at 10:11 pm
Your honesty is refreshing!!
May 21st, 2007 at 9:20 am
Thank you for your clarity on BOA! Another marketing gimmick much like Countrywides “no cost” mortgage.
May 21st, 2007 at 11:33 am
Yes, just like CW I suspect. And too consumers will buy these gimmicks and end paying higher rates, assuming that they got a free mortgage.
May 21st, 2007 at 6:11 pm
Don’t forget that for B of A this acts as a very profitable loss leader.
The way you are explaining it, arent they going to lose alot on their “Best Value Guarantee?”
May 22nd, 2007 at 9:36 am
John, how do you have a profitable loss leader? Those are mutually exclusive terms. You can’t sell below your cost and make it up on volume.
BofA has simply devised a campaign to get people in the door. But once there, they will throw so much information into the air that the borrower will become confused, give up and overpay enough of time that it’s still profitable.
This is deceitful. That’s my point. When the consumer accepts the fact that a) nothing is free and b) advertising is institutionalized deception, then they will no longer be ripped off.
July 9th, 2007 at 9:18 pm
You are forgetting to mention one very important point. Unlike traditional mortgages where borrowers are required to pay hundreds of dollars in PMI per month or take on a second mortgage (with a higher rate) if they put less than 20% down; The No Feee Mortgage aloows borrowers to put as litte as 5% down and does not require PMI! This alone saves anyone putting less than 20% down thousands of dollars per year. How is this not a huge benefit?
July 10th, 2007 at 10:01 am
R. Stellato,
If the borrower pays a higher rate for “lender-paid” MI, then not only are they not saving anything, but borrower pays more interest for the life of the loan, whereas traditional MI can be removed when the LTV reaches 80%. Lender paid MI often costs the borrower MORE in the long run than regular MI.
November 17th, 2007 at 11:51 pm
Gotta love some of the generic statements…
There is no one cookie cutter product for ANYTHING.
The No Fee program is great. It can be greatly beneficial for numerous people. It all depends.
Conversely, there are some programs that may fit someone’s situation better and beat the No Fee Proram. It all depends.
In my opinion, you will not find a better deal when putting less than 20% down.
It’s also a great alternative to 100% financing (utilizing closing costs funds for a 5% down payment and taking a higher rate). Yes, you may have to stretch for a little for the 5% depending on the loan amount…
Or it’s a good program for financing for a short-term, if you will not be in the home for an extended period of time.
Can a broker get a better deal??? It depends. With 20% down, yes. But you better do your due diligence and make sure you are dealing with a legitimate broker and there’s no surprises in the 11th hour.
Miscellaneous bank fees???…c’mon, be truthful, don’t blast the competition…
And in my opinion, why deal with PMI if you don’t have to???…not worth the hassle to get it removed…
November 18th, 2007 at 8:06 am
Brian, we agreed that no one size fits all, and also that electing a higher rate in lieu of paying up-front fees makes sense in a lot of cases.
But this type of advertising deceptively implies that BofA is working for free. People hear what they want to hear and believe what they want to believe. Since BofA doesn’t have to disclose YSP, the client is never allowed to know what the loan originator was paid for this loan. And at least at the time of my call to them, the rate was the same for loans below 80%, meaning that those people were being overcharged….at least compared to what I could give them.
Thanks for your comments.