When deciding to buy a home, you will discover you have so many decisions to make, each just as important as the next. One of the most common questions asked by new homebuyers has to do with points. Obviously, when buying a home, you want to spend the least amount getting into that home as possible. Therefore, understanding points could be one way of saving you money. The interesting thing is that today up to 80% of people refinancing a home do not pay points. The question – is this good or bad?
For most people, a no point loan sounds like the best deal. Well, the truth is that for the lender, no points is great news but not for the homebuyer. The reason is that you need to think of borrowing and lending mortgage money as a zero total game. In other words, there is a winner and a loser, just as if playing a game of cards. Therefore, with you being the homebuyer, the one who is borrowing the money, you want to do all you can to avoid paying more money to the lender.
However, some lenders will offer and even push a no point loan because the interest rates are higher, not just a little, but often a lot. For instance, if you had a home loan of $175,000 and you planned on staying in the home for eight years, if you were to secure a no point loan, you would be paying the lender more than $6,000 more in interest plus that much still owed, meaning they walk away over $12,000 richer. For that no point loan, they only sacrificed $1,500 in the first year.
Although it might not seem like a big deal between a no and some point loan, you would be amazed. Therefore, before you agree to a no point loan, you want to go through the calculations. The results may be more dramatic than expected. Remember, if the lender starts telling you just how great a no point loan is, we recommend you stand your ground or look for a different lender. After all, you are the one that will be making the payments so you want to do all you can to make life easier and more affordable for you.