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No-cost mortgage may be unwise in today’s market

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

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 you pay, the lower the interest rate. One point is roughly equal to a quarter percent on the interest rate. If you were to pay one point, you'd buy the interest rate down 0.25 percent in relationship ...