Using a Loan Calculator and Multiple Quotes to Save

Loan calculators are a great way to figure out loan payments and fees. You can also use multiple quotes to ensure that you get the best deal. Always get multiple quotes (4 is a good number) for your loan and then use either a loan calculator or basic math to figure out what the best deal for you will be. It’s pretty easy and it’s all about shopping around for the best deal.

Any loan where the lender pays all of your closing costs (title & escrow fees, appraisal, lender's fees, or any non-recurring expenses), is commonly called a ``no-cost'' loan. A true ``no-closing cost'' loan differs from both a ``no lender fee'' loan or a loan in which the lender adds the closing costs to the amount financed. A ``no lender fee'' loan, sometimes advertised by banks, usually will not cover the title, escrow, and other outside charges you may need to complete the refinance.

With a true ``no-closing cost'' loan, you can refinance for any drop in your interest rate since the transaction costs are zero. Even in a declining rate market where you believe rates may continue to fall, a no-cost loan makes sense. Should rates continue to decrease, you have invested nothing in the loan costs, and can simply refinance at any time. Some borrowers refinance every year or less!

There are a variety of interest rate and point combinations available to the borrower at any point in time for the same product or loan type. For example, for a loan amount of $200,000 a borrower can be quoted 6.75% with .875% points, 7.0% with zero points, or 7.25% with no closing costs. All three of these quotes are for a 30-year fixed rate mortgage. The lender allows the borrower to choose among rate and point combinations since some people prefer a lower rate over time, while others prefer minimizing how much they pay out of pocket up front. Thus, the borrower can select the combination which feels most comfortable to their personal situation. For some borrowers, the no-closing-cost option of 7.25%, while providing a slightly higher rate, requires the least investment up front and is therefore the best option.

No-cost loans will always carry a slightly higher rate than a loan that does not pay your costs. In general, a no-cost loan is the better strategy if you plan to keep your loan for the next two and a half to three years. Longer than that, you should consider paying the costs yourself to get a lower rate. Over time, the lower rate will save you more money. And if you plan to keep the loan for four to five years, it often makes sense to pay points to get an even lower rate.