Bank Of America Will Offer Mortgages Without Origination Fees For A Limited Time

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Bank of America is looking to make its home loans cheaper for borrowers.

The bank is now offering mortgages with $0 origination fees in a bid to win the business of borrowers who don’t have a ton of money squirreled away in savings to cover the myriad costs associated with buying a home.

There’s a catch. The promotion only applies to certain types of loan products: Federal Housing Administration-backed loans, Department of Veteran Affairs-back home loans, Freddie Mac HomePossible FMCC, -4.87%  and Bank of America’s BAC, -0.70%  own Affordable Loan Solution mortgages.

The offer is also only available through Oct. 31, 2019.

The offer was announced last month alongside other credits Bank of America is providing to first-time and low-income home buyers, and demonstrates the bargaining power some consumers now wield when shopping for a mortgage.

Bank of America’s move to reduce the borrowing costs could be a boon for would-be home buyers hamstrung by affordability constraints in pricey housing markets across the country.

“When you’re a borrower, it’s much easier to compare loan offers when lenders don’t charge fees because its a true apples-to-apples comparison,” said Holden Lewis, a housing expert at personal-finance website NerdWallet.

“Lots of eyes are on the few lenders who don’t charge origination fees, and if they thrive by doing so, you’ll see more lenders follow their lead,” he said. “A shift towards zero origination fee loans would be great for consumers because it would be easier for both home buyers and refinancers to comparison-shop and avoid unnecessary confusion.”

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Nearly 1 in 10 borrowers manage to avoid origination fees

Bank of America isn’t the only lender that offers borrowers loans without origination fees.

A new study from LendingTree TREE, +0.22%  found that 7% of borrowers who used a mortgage to purchase a home weren’t charged loan fees. However, 60% of borrowers paid between $1,000 and $5,000 in origination fees.

Origination fees can be extremely costly in high-priced housing markets, since they’re typically charged as a percentage of the home’s price. As a result, 3% of borrowers paid over $10,000 in these fees, LendingTree found.

Home-buying activity has been slowing in many parts of the country in recent months, and refinancing is less popular than it was a few years ago. As a result, demand for mortgages has softened considerably.

That provides an “in” for savvy bororwers, said Tendayi Kapfidze, chief economist at LendingTree. “You can get a zero-fee offer by looking at multiple lenders,” he said.

Word of warning: Borrowers shouldn’t jump at a mortgage just because the lender is offering to waive the origination fees.

Banks can attempt to make up the lost revenue from those fees by rolling the amount they would have earned into a higher interest rate or the principal of the loan, Kapfidze said.

Bank of America share are up 16% so far this year. Comparatively, the S&P 500 SPX, -0.28%  and Dow Jones Industrial Average DJIA, -0.39%  are up 14% and 11% year-to-date.