Lenders starting to offer no-closing-cost mortgages

But other lenders call it a gimmick that will end up costing homeowners more in the long run in the form of a higher interest rate.

David Wexler, principal with ChoiceFinance Company in Rockville, said the no-closing-cost deal could make sense for buyers who plan to keep the house for only a short time.

But for others, ‘‘there is no free lunch,” he said. ‘‘The interest rate is going to go up. So, it should always be looked at case by case. In some cases, it makes sense to pay the closing costs because it will mean a lower rate for the duration of the loan.” Choice offers no-closing-cost mortgages, but at a slightly higher rate than conventional mortgages.

Henry Biegacz, vice president of Baltimore American Mortgage Co., called his company’s no-closing-cost mortgage, which carries a higher interest rate, ‘‘hot.”

‘‘It’s helping get people to the table whose number one obstacle is cash,” Biegacz said.

Those buyers represent an increasing slice of the market, he said.

‘‘First-home buyers are doing maximum loans,” he said. ‘‘Savings is a lost art. And most people don’t understand what the costs are.”

Lenders’ pitches for no-closing-cost mortgages vary.

Baltimore American’s advertisement reads, ‘‘BAMC has simplified the entire loan process by eliminating points and closing costs on most refinance and home purchase transactions. Now you know exactly what you’re paying for without any confusion or guesswork.”

At its Gaithersburg branch, customers inquiring about the no-closing-cost deals are first told ‘‘that depends. What state are you in? Are you buying a new home or refinancing? Do you have an agent? You can do the no fees program if you use our agents.”

Last month, one of the nation’s largest lenders, Bank of America, announced nationwide availability of No Fee Mortgage Plus, which it dubbed a ‘‘groundbreaking home-purchase mortgage product.”

‘‘It is a wonderful product. It’s a deal maker,” said Larry Parrish, a consumer marketing executive with the Charlotte, N.C., banking giant. In his territory, which stretches from Georgetown in Washington, D.C., to Thurmont in Frederick County, the offer has ‘‘significantly increased sales,” although exact data are not yet available, he said.

Neither Parrish nor Bank of America spokesman Ernesto C. Anguilla would say if the bank’s rates increase with no-closing-cost mortgages.

Tim Maitski, an analyst with ReMax in Atlanta, warned in his advice column: ‘‘Don’t get fooled about someone offering no closing costs. There is no such thing as a free lunch. Banks have employees that must get paid. There are definitely costs involved in originating a new loan. They either can be itemized so you know exactly what you are being charged for or they can be hidden by being incorporated into the loan rate or points. You might get ‘no closing costs’ but you’ll be paying a higher interest rate or more points.”

Mid-Atlantic Federal Credit Union in Germantown is considering offering such mortgages, said banker Glen Lazovick.

‘‘But we want to see what is going on,” Lazovick said. ‘‘You are really not doing the person a favor. They pay more in the long run.”

Although average mortgage rates have risen slightly since January, they are still near the lowest in the 36 years of the Federal Home Loan Mortgage Corp.’s weekly primary mortgage market survey.

A 30-year fixed mortgage in April, for example, averaged 6.18 percent with 0.5 points, according to the Freddie Mac survey. In December, it averaged 6.14 percent with 0.4 points. The average has held at about 6 percent since its lowest point of 5.45 percent with 0.7 points in March 2004.

This report originally appeared in The Business Gazette.