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In the current credit market crunch climate that seems to be taking down the mortgage industry more than any other sector, many lenders are working to attract applicants with incentives like green mortgages and no-fee mortgages. Bank of America is one of those. But does the Bank of America No Fee Mortgage PLUS really save money in the long run? Or is it just a short-run savings?

Short-term savings with the Bank of America no-fee mortgage

The short-term savings are obvious. No closing costs. This can save a great deal, when you think that most of the time closing costs run between $2,000 and $4,000. Additionally, the Bank of America No Fee Mortgage PLUS does not require you to carry private mortgage insurance, which can be a hefty fee over the life of your mortgage loan.

Private mortgage insurance is designed to protect the lender in the event that you default on your loan. Most of the time, the lender adds the cost into the mortgage payment each month if you don’t make a 20% down payment. The Bank of America no-fee mortgage eliminates this, and allows you to avoid the private mortgage insurance, even without a 20% down payment.

What are the long-term savings of the Bank of America no-fee mortgage?

But, of course, costs to most lenders are usually made up in some way. In the instance of the Bank of America no-fee mortgage, the difference is made up by charging a higher interest rate. This higher rate, over time, offsets the short-term savings you manage to get from the set-up costs.

Bottom line: This is a great deal if you are planning to sell your home in five to seven years. You will save money overall. But once you get to the point where you are holding on to the home long-term (say 10 to 15 years) you will find that the interest charges more than make up for your initial savings.

Tags: private mortgage insurance, mortgage loan blog, mortgage loan, green mortgages,
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