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Zero Point Loans | |||||
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Commonly, purchasers choose to pay points on a mortgage in order to buy down the rate. The more points paid the lower the rate. Generally, the points are also tax deductible (consult your tax advisor). A zero point loan, like its name, requires the payment of no points. A "point" is 1% of the mortgage amount. For example, one point on a $300,000 is $3,000. For all intents and purposes, a point is prepaid interest. A zero point loan is especially attractive to individuals who do not have a lot of cash and who do not know how long they will reside in the premises and for most refinancers. Since the payment of points requires keeping the mortgage a certain period of time to |
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| recoup the cost of the points through lower monthly payments for the lower interest rate thereby obtained. If someone plans on moving shortly, paying points does not make sense. Likewise, refinancers generally speaking may not deduct the cost of any points, rather the points are amortized over the life of the loan. | ||||||
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