In Colorado, no cost mortgage loans have grown in popularity over the last few years. A no cost loan is receiving a loan with a slightly higher rate and lower closing costs. Specifically, the mortgage company will forgo the origination fee, which typically is 1-2% of the loan amount, for a rate that is 1/4-3/8 of a percent higher. The origination fee is the part of the loan that the mortgage broker receives and will therefore charge the bank. All other third party charges still apply. Items such as underwriting, title, processing, etc are all still pertinent and will be listed on the Good Faith Estimate. All other aspects of the loan process will remain the same.

   No cost loans are predominantly used as a refinancing option. However, they can be used for purchase transactions. Care should be taken when evaluating options for purchases. Purchase ratios are used as an indication of payment ability. It is possible, but unlikely, to price yourself out of the market if a higher interest rate is substituted.

   In general, this type of loan is preferred if the time remaining in the house is short because the time to recoup the cost of the refinance is small.