What is the difference between a zero point loan and a no-cost loan? Which is the better loan option?
Points are upfront fees to obtain a lower rate of interest—one point is usually referred to as on 1 percent of the loan amount. Therefore, if you were paying one point on a $100,000 loan, it would be $1,000; 2 points would be 2 percent, or $2,000. Many consumers believe that by paying one point, the rate will be brought down by a full percent—that is incorrect. Zero points means just that—the borrower is not paying any points to buy down the rate. On the other hand, a “no-cost loan” could have many variations. It depends on the lender, and what the loan is referring to. A no-cost loan could mean having no points, no closing costs, no out-of-pocket expense to the consumer—many variables could apply. In many situations, it means at no cost to the buyer, or out-of-pocket cost to the borrower. Lenders will build the cost of the loan into the rate, resulting in a slightly higher interest rate for the consumer. In the refinance boom we are experiencing in today’s market, the costs would typi
