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Mortgage Info » Refinance No Points

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When a person shops around for refinance mortgage, lenders usually ask for an upfront payment to be made. This amount is generally a certain percentage of the refinanced loan. The upfront payment is expressed in “points” where each point equals one percent of the loan. So for example if a particular refinancing option requires a payment of 4 points it would mean that 4% of the loan payment has to be made upfront. The “point” also known as a “Discount Point” is an important factor in the calculation of the annual rate of interest on the Refinanced debt.

The way the point system works is the more points purchased by a borrower at the time of closing on the loan, a lower rate of interest will be levied on the loan. This in turn will benefit the borrower on a long term refinanced debt as it would translate to lower monthly payments. Lenders theses days have a variety of point and interest rate options available to choose from and a borrower must do his/her homework to see which option suits their needs. Some lenders also provide refinance “no point” option wherein no upfront payment is required to be made when refinancing your debt.

In the refinance “no point” option the lender incurs a higher risk and hence the long term refinanced loan will also have a higher rate of interest than a loan with an upfront payment. Another important thing to note is the sanctioning of a no point refinance depends on the credit history of the borrower. A person with an excellent credit history has better chances of getting a no point refinance than a person with a moderate or weak credit history.

The decision whether to go for a refinance with no points or with points largely depends on the current monetary situation of the borrower. The benefit with the upfront payment is that a lower monthly premium will have to be made for the duration of loan, but the upfront payment may require a large sum to be paid initially and it may not be possible for every borrower to raise such kind of money.