Pittsburgh Homes Daily

Realty Times today has an article about how No Cost Mortgages are Coming.  I was a bit skeptical when I saw it come across my RSS Reader from Fidelity Assets Blog.  After all, increasing the interest rate slightly would achieve the same effect over the long run as charging fees up front.  And if the mortgage company is simply going to sell the mortgage to another company, the purchaser will discount the future potential earnings from the loan to their present value.

 But Bank of America insists that their rates will still be competitive with other mortgage lenders.  They’ve said ”there are no gimmicks.”  They say that they are willing to take a loss to generate clients. 

But isn’t that the trick, after all?  If they can build a relationship with you through a “no fee” program, they are hoping to be able to sell you their services later.  You may be hearing from them for months … now that they have bought your number.

I’ve always wondered about the economics behind the grocery store bonus cards and the Comcast first 6 months at a low low price.  Sure, there are times when a specific customer benefits because of the deal.  But won’t the fees on Bank of America’s other services be slightly higher because they are now supporting the “no cost mortgage?”

I’m not saying that there aren’t benefits to a no cost mortgage.  I support programs that allow more people to buy a home and promote flexibility.  I just think that the term “no cost” is probably a misnomer.  We will see.