No Fee Mortgage Plus = No Real Bargain

I went in to my bank today to make a deposit.  I noticed their advertisement for their "No Fee Plus Mortgage".  After reading the terms and conditions of the offering, I realized that it was no great bargain but a pretty smart marketing ploy.  Here's what I saw (the date was partially  cut off but it was today):

This means that the bank is absorbing some $3,500 in costs, on a $320,000 loan but charging a discount fee of 1.312 % (or in this case, some $4198.40).  So, the total charges for the bank's "no fee mortgage plus", at 6.5%, would be $4,198.  I would offer the same loan terms for the $3,500 in costs.

Advantage:  Brady by about $700 for the 30 year fixed rate loan at 6.5%.

On the 5/1 ARM example, at $320,000,  I would charge the $3,500 in fees plus 1.25% for a discount fee, totaling $7,500 in costs.  The bank offering absorbs the $3,500 in costs but charges the borrower a discount fee of 2.228 % or $7296.

Advantage:  The Bank by about $300 for the 5/1 ARM at 5.5 %.

It's just prestidigitation and the mortgage industry is famous for it.  Banks, brokers, we all go to the same place for funding; Wall Street.