These features are available with almost every product through EMA. However, the principle of “pay now or pay later” applies, and the customer should consider the advantages and disadvantages of convenience. The main benefit of a zero-point or no-cash loan is that it minimizes out-of-pocket cash expenses at closing. It is important to remember, however, that the money you save initially will consequently increase the future payments you will make.

A loan that charges zero points (discount and origination fees) will have a higher interest rate and consequently higher payments than one that does require the payment of points. It should be noted, however, that although zero-points will increase the interest rate, interest is tax-deductible. Therefore, a zero-point loan may be an economical choice for customers who know they will only be in a home for a short time and can afford the higher rate.

As with zero-points, a loan that requires no cash at closing also has its downside. These closing costs and fees will then be added into the loan, thus increasing the loan amount. This works against the customer when trying to refinance a home because the increased loan amount may be higher than that allowed by the collateral value of the home. However, this no cash configuration is popular in refinancing properties that have substantial equity.

Case Study
A local real estate developer wanted to purchase a new home with zero-point financing. He had refinanced his current home two years ago using an Internet mortgage provider. The Internet provider did offer him a no-cash at closing feature but took forever to approve the loan because it considered the owner self-employed, which they viewed as a risker

The new home the developer wished to purchase was so desirable because of its distinctive architectural features that there were four “back-up” contracts waiting in case he could not close on time. The contract that was written specified that it had to close by a specific date, and there could be no delays. Therefore, the developer contacted EMA because he knew we had financed many of his own home-buying customers.

To the developer’s surprise, EMA recommended he pay a point as well as closing costs. EMA demonstrated that the interest rate on the fixed mortgage product he wanted would be less if one point were paid. His investment of $3,000 would earn him 6.8% per year in saved interest cost over the 30-year term of the loan.

Furthermore, by asking him to pay closing costs and his origination fee at closing, the loan-to-value was lower, which meant that less stringent qualification standards applied, allowing the loan to close faster.