We all know that borrowing money to buy a home costs money. How much those home loans or mortgages cost depends…on interest rates at the time of the loan, the borrower’s credit score, the amount of the loan, the lender itself, the closing costs, the terms and length of the loan, the context of the loan, you name it.

No wonder that some 23% of home sales in 2017 were all cash sales. Investment buyers, distressed homebuyers, second home buyers and foreign buyers who had the cash to buy homes outright chose to not pay the “extra” money that home mortgages/home loans cost.

And, no wonder that you as a real estate agent advise your clients, the 68% who need to borrow money via home loans/mortgages in order to acquire a home, to “shop around” for “the best deals.”

As mentioned above, one element that goes into the cost of home buying is closing costs. Closing costs include paying for services such as loan origination, appraisal and title fees, and title insurance premiums. According to Bankrate’s 2017 Closing Costs Survey, the origination and third party fees on a $200,000 mortgage run an average of $2,084, depending upon state-by-state variables.

Closing costs can be added upfront to the mortgage amount at the time the loan is approved by the lender or the lender may offer the borrower a no-closing-cost mortgage…no upfront closing costs with a higher monthly interest rate loan repayment plan that includes the closing costs over the life of the loan.

This translates, for example, into the lender offering the borrower either a “regular” mortgage at a 4.0% interest rate plus upfront closing costs at the time the loan is approved or the lender offering the borrower a no-closing-cost mortgage at a 4.325% interest rate over the life of the loan without any upfront closing costs.

Obviously, a 4.0% interest rate on a “regular” mortgage looks better than a 4.325% interest rate on a no-closing-cost mortgage initially but …is it really?

According to Cameron Findlay, executive vice president of capital markets at Paramount Equity, it all depends. “You have to look at the break even (point)…If the borrower doesn’t have the cash to pay the fees associated with upfront closing costs or the borrower plans to stay in the house for less than five years, the slightly higher interest rate on the no-closing-cost mortgage is likely to be less expensive than the ‘regular’ mortgage.” If, on the other hand, the borrower plans on staying in the home for 5+ years, the borrower will “break even” on the upfront closing costs with a “regular” mortgage in approximately 6.75 years.

The difference between “regular” mortgages with lower interest rates plus upfront closing costs and no-closing-cost mortgages with higher interest rates is a question of math…and the amount of time the borrower intends to live in the house. Frank Nothaft, chief economist with CoreLogic, said, “It’s up to consumers to decide if the trade-off makes sense.”

Get out your calculators, agents, and help your clients determine whether a no-closing-cost or regular mortgage works better for them.