What does it mean if a loan is described as 'no points'?

When a loan is described as 'no points,' it signifies that the borrower does not pay any upfront fees, known as points, that are typically calculated as a percentage of the loan amount. Points are often used to lower the interest rate on a loan; by paying points upfront, a borrower can secure a lower monthly payment over the life of the loan.

Choosing a loan with no points often results in a higher interest rate compared to loans where points are paid upfront. Essentially, borrowers are opting to avoid these upfront costs at the expense of accepting a higher interest rate, which can lead to a greater overall cost of borrowing over time.

This concept is crucial for borrowers to understand, as it impacts both their initial out-of-pocket costs and their total expenses in the long term. It emphasizes the trade-off between upfront costs and long-term financial obligations in mortgage lending, allowing borrowers to make more informed choices based on their financial circumstances and preferences.