Cut your financing costs to zero. Whether it’s for a brand new purchase, one in the future or refinancing an existing mortgage, the way mortgage lenders price their rates it most always makes sense to choose a no-closing-cost closing costs on mortgage

Mortgage interest is spread out over the loan term with more interest paid near the beginning and less toward the end of the note.

Borrowers have the option to lower an interest rate by paying discount points. A form of prepaid interest and expressed as a percentage of the loan amount, a lender will accept points for the income in the near term and lower the interest rate for the long term. In essence, the lender gets an advance on the interest paid.

One point on a 30 year note will lower a rate on average by one-quarter of one percent. Let’s look at a 30 year rate for a single family rental of 3.75 percent using a $200,000 mortgage. The principal and interest payment works out to $926.23 per month. By paying one point, or $2,000 the rate might be bought down to 3.50 percent, lowering the payment to $898.09, saving $28.14 per month. Yet if the closing costs, including lender fees, title insurance and other charges add up to $4,000, it will take 139 months to make up for the $2,000 spent in points and fees.

Now say closing costs are $2,000 without the points. If you raise the rate by one-quarter of one percent to 4.00 percent, the monthly payment rises to $954.83. Raising the rate in this manner provides you with a $2,000 lender credit to cover your fees. Your payment goes up by $28.60 per month yet it cost you nothing. In this scenario, it would take 70 months to make up the difference between the higher payment compared to paying $2,000 in closing costs.

When considering this option take into consideration any interest already paid on an existing loan and adjust your loan term accordingly. If you now have a 30 year note and you’re five years into it, select a 25 year term and run the numbers once again.