What are Points?
Points – sometimes called Origination Fees or Discount Points - are fees used to reduce your mortgage interest rate. For example, a One-Point loan will always have a lower interest rate than a Zero-Point loan. Therefore, paying points is a tradeoff between paying money at your closing in fees versus paying money later with a higher mortgage payment.
No Closing Cost Mortgages
Here are a few reasons for choosing a “No Closing Cost" mortgage:
1. If you lack the cash for closing - a "No Closing Cost" mortgage can save you thousands of dollars.
2. If you plan to live in your home for less than 4-5 years - paying points and closing costs will give you a lower interest rate and therefore a lower monthly payment, but it typically takes 4-5 years of paying that lower payment to outweigh the total cost of the closing costs.
3. Lack of equity in the property when refinancing - if you do not have enough equity in the property to roll your closing costs into the new mortgage then a “No Closing Cost” mortgage may make sense for you to consider.