DEFINITION of 'No-Cost Mortgage'

A mortgage refinancing situation in which the lender pays the borrower's loan settlement costs and then extends a new mortgage loan. A lender does this in exchange for charging the borrower a higher interest rate. When the lender then sells this mortgage into the secondary mortgage market, the price it will receive for the mortgage is based on the interest rate on the mortgage.

A mortgage broker would do the same based on the size of the rebate they might receive from a lender.

BREAKING DOWN 'No-Cost Mortgage'

Do not confuse a no-cost mortgage with a no-cash mortgage. This is a mistake borrowers frequently make. With a no-cash mortgage, the settlement costs are rolled into the loan's principal balance, and will therefore be paid for over time, with compounded interest.

With a no-cost mortgage, the borrower pays financially in the form of higher interest charges on a lower principal balance. A borrower should perform a thorough analysis to determine the most suitable mortgage option.

RELATED TERMS
  1. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  2. Negative Points

    A cash rebate paid by lenders to a mortgage broker or the borrower ...
  3. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  4. Mortgage Originator

    An institution or individual that works with a borrower to complete ...
  5. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  6. Third-Party Mortgage Originator

    1. A person or company involved in the process of marketing mortgages ...
Related Articles
  1. Personal Finance

    Score a Cheap Mortgage, Here’s How

    Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible.
  2. Personal Finance

    How Do Mortgage Lenders Get Paid and Make Money?

    When homebuyers educate themselves on how mortgage lenders get paid and make money, they are more likely to save thousands of dollars on their mortgages.
  3. Personal Finance

    Mortgage Broker vs. Direct Lenders: Which Is Best?

    There are key differences between mortgage brokers and direct lenders. Here's how to choose which is best for you.
  4. Personal Finance

    Shopping for a Mortgage? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgage rates for 2016 can all be done online.
  5. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  6. Personal Finance

    5 Things You Shouldn't Tell Your Mortgage Broker

    Applying for a mortgage can be a strenuous process. Here are five things to avoid doing when meeting with your mortgage broker.
  7. Personal Finance

    7 Mortgage Trends To Expect In 2011

    How will the year compare to 2010? What's likely to be different?
  8. Personal Finance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  9. Investing

    The Most Important Factors that Affect Mortgage Rates

    Discover what the most important factors are that affect mortgage interest rates. Factors range from inflation and economic growth to Federal Reserve activity, .
  10. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
RELATED FAQS
  1. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  2. If my mortgage lender goes bankrupt, do I still have to pay my mortgage?

    Yes, if your mortgage lender goes bankrupt you do still need to pay your mortgage obligation. Sorry to disappoint, but there ... Read Answer >>
  3. What are the pros and cons of a simple-interest mortgage?

    Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>
Trading Center