What Is No Cost Financing?

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In this article on "What is No Cost Financing" I will explain the basics about no cost financing. But, before I go to what no cost financing is, many would like to know "what is financing" in general. For those of the little who do not know what financing is, please read on.

Financing covers any debt borrowed against any immovable property, movable property, intellectual property, or any thing that can guarantee the return of money borrowed. This would generally cover mortgage, and other similar loans taken.

The party who would give you the money would be the lender or otherwise called the financier. Now, once you have come to an agreement with the financier, it needs to be put down on paper.

This putting down on paper would include activities like title insurance, fees for recording, escrow fees, processing fees, underwriting fees, cost of loan documents and so forth. All this is going to cost a small bundle and this if waived off is called no cost financing.

Now the next practical question comes, is no cost financing possible? The answer is a big YES. The financiers give you no cost financing. This is made possible only with yield spread. It is also called as lenders rebate.

What is this lenders rebate or so called yield spread? I will demonstrate this with a small example. First let me tell you that all figures in this example do not represent any rate of interest provided by any financier or for any particular period.

Let us imagine that there are a number of lenders like some commercial banks, mortgage companies or mutual banks. You being the loan originator approach the banks with an application for a loan.

Now these bodies are giving out loans at a rate called the wholesale value interest rate. Now on your loan application you are offering an interest rate which is higher than the whole sale value interest rate for your own purposes.

Now this being the case, the lender pays you a fee which is called the yield spread, or you are entitled to a rebate. This will be the case if the demand is more than the supply.

If you take a loan at the rate of 5.125 %, then you are under a lock in period. Let us imagine that the lock in period is for 15 days. For this rate you will not be entitled to a rebate. But, if you are applying for a higher interest rate of say 6 %, then you will not be required to pay for your own closing costs. This will be the case if you are under a lock in period of 30 days. This will be making the loan a bit more expensive as you will be paying the differences for a period of another 30 days.

I hope this article has given you a clear idea as to what is no cost financing and how it works.

Article Source: http://depositarticles.com/

Greg Lucas is a small business owner and an on-line marketing expert who owns and operates a large network of informative and educational websites. for more information please visit: no cost financing

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