No Closing Cost (NCC) Mortgages

A No Closing Cost Mortgage (NCC) allow you to avoid non-recurring closing costs by selecting a slightly higher interest rate with a defined Premium Rate Credit (PRC) (AKA Yield Spread Premium) that will cover the closing costs of the loan, allowing you to close with minimal cash requirements.

With residential financing there are a variety of interest rate and point combinations available to the borrower on all product lines, from fixed and adjustable rates to combination 1st and 2nd mortgages called piggybacks. While some borrowers prefer to obbtain the lowest rate possible, others prefer minimizing their up-front expenses and for these borrowers, the NCC option is preferable because it requires the smallest investment at closing.

NCC loans can be used for both refinance and purchase transactions. In general, a NCC loan is a very good strategy, however if you plan on retiring the mortgage over a particular term, you should consider paying some costs out of pocket to secure a lower rate, since over time the lower mortgage payment will offset nominal up-front costs.

NCC Refinances

NCC loans generate immediate interest rate and payment savings with no up-front investment in closing costs. For instance, imagine that a borrower is currently at 5.500% on a 30-year fixed rate loan and is interested in refinancing at a lower rate. If this borrower chooses to refinance using the NCC method they will immediately save money by refinancing. With a 4.750% NCC loan, their payment would decrease immediately and should interest rates continue to decline, the borrower can simply refinance again to obtain additional savings.

Please consult your accountant for tax related consequences of Refinancing - A NCC loan will not have points or closing fees, and thus there is no deduction for that cost. However, nothing has left your pocketbook either. And, refinance costs are expensed over the life of the loan, for example, on a 30-year loan, you can deduct 1/30th of the points paid each year. If you refinance for a second time, however, you can deduct the non-amortized points in the year you refinance the loan. Consult your tax advisor for more information.

NCC Purchases

In the case of a purchase transaction an NCC option can work extremely well when the borrower has limited funds available for closing or when interest rates are declining and the borrower may want to refinance quickly to take advantage of additional rate reductions. An NCC loan may be used very effectively to free up cash for the down payment or to save for repairs.

Purchases - some would argue that buyers should pay points to obtain a tax deduction. Of course,tax deductibility is an important consideration, but it is only one factor to be weighed. Paying points up-front to secure a low rate in an environment with declining interest rates could be unwise. If you decide to refinance shortly after a purchase, the effect of paying up-front points and costs would have been lost.

Trinity is a strong proponent of NCC mortgage methodology and when evaluated completely it will be discovered that this particular mortgage origination strategy, in almost all cases, is far more beneficial to the consumer, irregardless of the loan product. Loan size may play a part, as small loan sizes make it difficult to generate enough cash through the Premium Rate Credit to cover costs. PRC's are a percentage of the loan amount and therefore it is easier to have costs covered in a larger transaction than a smaller one.