Home Buying Points, Home Loan Points & Mortgage Points Benefits

What are Points?
Points are mortgage interest fees paid upfront on a loan to reduce the initial interest rate. For example, if you have a one-point loan, then the rate of interest will always be lower than a zero-point loan. Considering this, paying points can be better described as a tradeoff between paying money now versus paying money later.

“No Point Loans — No Closing Cost” mortgage
A home loan can be a no point loan if the borrower does not pay the costs typically associated with a loan closing such as lender's title insurance, survey, attorney's fees, appraisal, credit report, document preparation, and underwriting fees. There are many reasons behind opting for a "No Points — No Closing Cost" Mortgage.

§          Lack of cash to close escrow- If you are purchasing a new home and are short on cash for the down payment, a "No Points — No Closing Cost" mortgage can save you up to thousands of dollars.
§          Tenure of stay- Typically, you need to stay in your property for at least 4-5 years to realize the benefit of the lower payment of points. If the estimated tenure is less than 4 years, paying points and closing costs will give you a lower interest rate and a lower monthly payment.
§          Lack of equity in the property when refinancing- If it makes financial sense to refinance your mortgage, but you do not have enough equity in the property to add your closing costs into the new mortgage - a "No Points — No Closing Cost" mortgage could make great sense.

Tax Issues
Points have to be amortized over the life of the loan in a refinance transaction. If you have applied for a 30 year loan, you can deduct 1/30th of the points paid each year. However, if you refinance for a second time, you may be able to deduct the remaining unamortized points in the year you refinance the loan. Consult your tax advisor for more information.