So that they might be competitive, a number of lenders are currently promoting so-called "no fee" mortgages. According to commercials from several loan companies, you can take out a mortgage where you only pay interest; there are no extra costs at closing. Can you really save by applying for a no fee loan?

As usual with this sort of advertising, the answer is "maybe, or maybe not." A mortgage company isn't going to just eliminate charges that can amount to almost 3%-5% of the amount of the loan. Any mortgage company that just eliminated a source of revenue would soon go broke, as those charges contribute to their profits.

How do no fee mortgages work? Their income needs to come from somewhere; it's going to come from increasing the price to borrow the money. The loan company is going to charge you a higher rate of interest than a company that charges closing costs will. That's not always bad; it means that they are charging you differently. The lender may make some additional money by re-selling your home loan to a different company at a later date. The increased rate of interest might make the loan easier to sell on the secondary market.

What does this mean for you, the loan applicant? As with any mortgages or anything else that you buy of value, you need to compare lenders before taking out a loan. The only way to tell who might be offering a bargain is to compare the costs of all the lenders and do the math. Only when you look over the total cost, including how much in total you will pay by the time the mortgage is paid off, will you be able to see who is offering the best deal. Each lender is going to have different methods of making their revenue; some will charge higher rates, others will charge higher closing costs.

Is the advertisement a scam? No, but it is somewhat deceiving. You are not actually paying less, but it makes successful advertising. The lenders, through their advertising, want you to believe that you are getting a bargain, as claiming that there are no fees at closing might make you think that you are getting a bargain. Smart consumers are usually suspicious when an offer appears too good to be true. Anytime you think about taking out a home loan, you should look at all of the quotes from all of the mortgage companies you talk to so that you might find the deal that best meets your needs.

©Copyright 2007 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm with a number of informational Websites, including HomeEquityHelp.net, a site with information regarding home equity loans, mortgages and lines of credit.

Tags: money, profits, bargain, commercials, advertisement, math, lenders, closing costs, rate of interest, selling your home, mortgage company, loan applicant, home loan, loan company, loan companies, different company, successful advertising