Yesterday, Bank of America introduced its no-fee mortgage program. According to their website, the new program No Fee Mortgage PLUS, which is available to home-buyers nationwide, includes the following features:
No Application Fee
No Closing Fees
No Private Mortgage Insurance Required
Best Value Guarantee
According to a CNNMoney report yesterday, BoA also “won’t charge for private mortgage insurance – often required for borrowers who put less than 20 percent down.” However, the no-fee program is only applicable to buying a home, not refinancing.
While it’s good to have a loan without all the fees, they have to be put in the context of the overall costs of buying a home and the dominant factor is not the fees, but the interest rate of the loan. So how does BoA’s rate compare with its rivals? I run a quick check on Bankrate.com and found that for a $250K loan, the rate of 30-year fixed mortgage from BoA, currently at 6.625%, is in fact the highest among dozens of banks offering the same product in the area close to where we live. The lowest rate is 5.375% from VirtualBank. That works out about $200 difference in monthly mortgage payment! During the lifetime of the loan, the total interests for the BoA loan is $326,279.86 while the interests for VirtualBank loan is $253,974.11. Can the savings on fees offset the $72,306 more on interests?
I don’t see BoA become my first of choice of mortgage products, unless their rates are really competitive. Fee isn’t the only factor to consider when shopping for a mortgage.
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