All About Points | No Cost Option

Another alternative for your clients is a zero "out-of-pocket" closing cost loan. This option means your client will be able to cover all of the closing costs normally associated with a loan without having to increase the principal amount of the loan or paying it out of pocket at closing. This is made possible by choosing an interest rate with a large enough "rebate" to cover the costs.

The table below shows how different interest rates and points are typically shown. This example is for a $100,000 loan amount. Notice the interest rates with less than zero points. The points are displayed with a negative sign (-). This means the points are not a charge, but are instead a "credit" to the borrower.

To assist your client in obtaining a no "out of pocket" closing cost loan, first estimate the total amount of closing cost that would be charged (excluding points) to obtain the loan. For purposes of this example, let's say the costs are $2,500. On a $100,000 loan -2.500% discount points equates to a $2,500 credit to the borrower. This $2,500. credit is used to pay for the closing costs on the loan in this example.