No-cost mortgages are popular with home buyers who are trying to scrape together enough cash to buy a home. Now that the cost of mortgage money is rising, it makes sense to re-evaluate this financing strategy. To say that a mortgage has no costs is a bit of a misnomer. The borrower pays few if any upfront fees to originate a no-cost mortgage. But the upfront fees, like points, are added to the cost of the mortgage. The cost is reflected in a higher interest rate. "Points" is a term lenders use for the mortgage origination fee. One point is equal to 1 percent of the mortgage amount. So, if you pay one point to originate a mortgage for $500,000, you will pay $5,000 cash to the lender at closing. There is an inverse relationship between points and the mortgage interest rate. The more points ...
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