Bank of America, the sixth-largest home mortgage lender by new loan volume last year in the United States, released a new “no fee mortgage” program last week that promises absolutely no associated closing costs and application to funding turnaround time guarantees.
It also guarantees closing within 25 days or the first mortgage payment is waived. And any consumer approved for a mortgage who chooses to close with another bank or lender will be paid $250.
The national launch for the new loan program took place last week producing the most applications for home purchases in the bank’s history, and a beta test in select markets boosted lending by fifty percent in those areas, according to a company spokesman.
It should be noted that Bank of America achieved this success without a formal announcement regarding the launch of the program.
Bank of America’s no fee mortgage comes during a national mortgage crisis, and the introduction of the program is likely an aggressive move to claim a larger chunk of what little mortgage business remains.
The no-fee mortgage is similar to the Countrywide No Cost Refi which also offers lender paid closing costs, although Bank of America seems to be the only lender that won’t require borrower-paid private mortgage insurance on loans above 80% loan-to-value.
The real question will be whether the new no fee mortgage program makes sense for consumers. To offset the reduction in fees, Bank of America will surely have to raise mortgage rates on the program.
The extent of the increase is not known, and without rate shopping, it will be hard to gauge whether the program actually saves the typical homeowner money.
The savings are questionable, especially since most loans fall below 80 percent loan-to-value which eliminates the requirement for private mortgage insurance, along with the fact that most closing costs are seller paid if it’s a purchase.
If you do choose to finance your home with Bank of America, compare their rates on the no fee mortgage program to their original mortgage program. There should be a discount in rate on the original program.