Home Loan Refinancing, Mortgage Refinancing & Refinancing Loan Points Benefits

What are Points?
As a homebuyer, you may pay mortgage interest fees upfront on a loan to reduce the initial interest rate. The upfront interest fee is called points. Rates of interest are always lower the more points you have, e.g. for a one-point loan, the rate of interest would be lower than a zero-point loan. Hence, paying points is a tradeoff between paying money now against paying money later.

“No Point— No Closing Cost” mortgage
By opting for a ‘No point-no closing cost loan’ you do not pay for the costs typically associated with the closure of a loan such as lender's title insurance, survey, attorney's fees, etc., leading to substantial savings.

Following are the situations when you might consider opting for a ‘No Points — No Closing Cost’ mortgage.

·          Lack of cash to close escrow- this is beneficial if you are going in for a new home
       purchase and are short on cash for the down payment. In such a situation, a "No
        Points — No Closing Cost" mortgage loan can save you up to thousands of dollars.
·          Tenure of stay- Normally, you need to stay in your property for at least 4-5 years to
        realize the benefits of lower payment of points. However, if the estimated tenure is
        less than 4 years, you can opt for a no ‘point-no closing cost’ as the closing costs
        will give you a lower interest rate and a lower monthly payment.
·          Lack of equity at the time of refinancing- You may have decided to refinance your
        mortgage, but do not have enough equity in the property to add your closing costs
        into the new mortgage. in such as case a ‘No Points — No Closing Cost" mortgage
        could make great sense.

Tax Issues
In a refinance transaction, points are usually amortized over the entire tenure of the loan. For example, if you have applied for a 30-year loan, you would be able to 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. We suggest you to consult with your tax advisor for more information.