Can You Get The Best Mortgage Rates With A "No Points" Loan?

Posted by  on Apr 01, 2010

Can You Actually Have the Best of Both Worlds With a No Cost Loan?

For the curious folks, banks and lenders can afford to make these types of loans because of the way mortgage interest rates are structured. Although borrowers seem to avoid these closing costs initially, mortgage lenders have to charge a higher rate of interest, and the increased profit is used to cover your upfront costs. The margin can vary among different lenders, but even the best mortgage lenders will increase their interest rate anywhere from 0.375% to 1.00% for a no cost loan.

Those who are planning to move, sell, or refinance in the near future will often prefer to keep their upfront costs to a minimum. If you're shopping specifically for a no cost loan, you'll need to pay special attention when comparing mortgage quotes since the premiums can vary quite drastically.

Paying points and other costs to get a lower rate lengthens your break-even point, but over time borrowers with long time frames generally do better buy paying more now and saving over the life of the loan, benefiting from lower interest rates. If you've agreed to pay these costs of a mortgage, run the rate and costs through an APR mortgage calculator and see that the APR, which reflects the interest and costs of your loan, is the best deal you can get.

While the best mortgage rates are often assumed to be the lowest, finding the balance point between interest rates and closing costs is often the better move.


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