NEW YORK -- Bank of America Corp., the second-largest US bank, is offering customers a no-fee mortgage whose interest rate covers upfront charges and insurance costs while remaining competitive with rival loans.
The program eliminates fees normally charged for items including applications, appraisals, and title insurance, the company said. The bank also won't require private mortgage insurance, typically required to protect a lender against default when mortgages exceed 80 percent of a home's value.
"When I say there's no fees, there's no fees," Floyd Robinson, head of the Charlotte, N.C.-based company's home-loan business, said.
Bank of America has said it wants to boost investments in mortgages, even with US home sales running 14 percent below last year's level. Lending was boosted by half in markets where the bank tested the program, Robinson said, and when the loan debuted nationally without fanfare last week, it produced the most applications for home purchases in the bank's history.
The company estimates that waiving similar closing costs on all home mortgages last year would have saved borrowers more than $17 billion, or about $3,500 per $200,000 loan. Private mortgage insurance typically costs 0.5 to 1.25 percent of loan balance annually.
The benefit for consumers will depend on whether the bank charges nothing more on interest to offset the other perks, said Keith Gumbinger, vice president at HSH Associates, a mortgage-rate research firm in New Jersey.
The new program will help the bank get more home loans that can be held on its balance sheet to generate interest income, Robinson said. At the same time, he said, the bank can "cross-sell" other products to new customers.