Stop Confusing No Points with No Fees—They Could Cost You Thousands

• Quick Takeaway

"No points" and "no fees" are NOT the same thing—and mixing them up could cost you thousands. Points are optional charges you pay to lower your interest rate. Fees are the required costs to process and close your loan. A true "no closing cost" mortgage covers both, but you'll pay for it through a higher interest rate. Before you sign anything, know exactly what's included—and what's not.

Why These Terms Confuse Everyone

Here's the problem: lenders love to throw around terms like "no points," "no fees," and "no closing costs" like they all mean the same thing. They don't. As Total Mortgage explains, this terminology can be confusing because these mortgages don't actually eliminate costs—they just shift them from upfront payments to costs you pay over time through a higher interest rate.

When a lender advertises "no points," they might still charge you thousands in fees. When they say "no fees," they might still expect you to pay points. And when they promise "no closing costs," the fine print matters a lot. According to Erate, "no point, no fees" is actually a more accurate description than "no closing cost" because it tells you specifically what's being waived.

What Are Points?

Points are upfront fees you pay to your lender at closing, and they come in two flavors: discount points and origination points.

Discount Points: These are basically prepaid interest. You pay money upfront to "buy down" your interest rate. According to the Consumer Financial Protection Bureau (CFPB), one point equals 1% of your loan amount and typically lowers your rate by about 0.25%. So on a $300,000 mortgage, one point costs $3,000. These are optional—you choose whether to pay them based on how long you plan to keep the loan.

Origination Points: These cover the lender's costs for processing your loan. As SmartAsset notes, origination points are not tax-deductible and aren't optional like discount points. Some lenders have moved away from origination points and now offer flat-fee or no-fee options instead.

What Are Fees?

Fees are the various charges required to process, underwrite, and close your mortgage. Unlike discount points, these aren't optional—someone has to pay them. According to NerdWallet, closing costs typically run between 2% and 6% of your loan amount. On a $300,000 home, that's $6,000 to $18,000.

Fees fall into several categories, and understanding them helps you know where your money goes—and where you might save.

Lender Fees (You Cannot Shop For These)

These are set by your lender. You can compare them across different lenders, but once you pick a lender, you're stuck with their fees. According to the CFPB's Loan Estimate guide, these appear in Section B of your Loan Estimate under "Services You Cannot Shop For."

• Application Fee ($200-$500): Covers processing your loan application
• Origination Fee (0.5%-1% of loan): The lender's charge for creating your loan
• Underwriting Fee ($300-$750): Pays for reviewing and approving your application
• Credit Report Fee (~$35): Covers pulling your credit history
• Flood Certification Fee (~$50): Determines if your property is in a flood zone
• Processing Fee (varies): Administrative costs for handling your paperwork

Third-Party Fees (You CAN Shop For These)

Your lender requires these services, but you can choose your own providers. The CFPB confirms these are listed in Section C of your Loan Estimate as "Services You Can Shop For." Your lender must give you a list of approved providers, but you can also find your own.

• Home Appraisal ($500-$1,000+): Confirms the home's value matches the purchase price
• Home Inspection ($300-$500): Checks the property's condition before you buy
• Title Search ($300-$600): Verifies no one else has claims on the property
• Title Insurance ($300-$2,500+): Protects against ownership disputes
• Escrow Fee ($350-$1,000+): Paid to the company handling funds and documents
• Survey Fee ($300-$500): Confirms property boundaries
• Attorney Fee ($400+): Required in some states for document review
• Pest Inspection (~$150): Required in some areas for termite checks

Government Fees (Fixed—No Shopping)

These are what they are. According to Fannie Mae, government fees aren't negotiable and vary by location.

• Recording Fee ($20-$250): Updates county records with your new mortgage
• Transfer Taxes (varies by location): Tax on transferring property ownership
• FHA Upfront Mortgage Insurance (1.75% of loan): Required for FHA loans
• VA Funding Fee (1.25%-3.3%): Required for VA loans
• USDA Guarantee Fee (1%): Required for USDA loans

Prepaid Items (Required, Not Negotiable)

These aren't technically "fees"—they're money set aside for future costs. But you still pay them at closing.

• Prepaid Interest: Covers interest from closing day until your first payment
• Homeowners Insurance (first year): Required before you can close
• Property Tax Escrow: Usually 2-3 months set aside in advance
• Mortgage Insurance Escrow: If your down payment is under 20%

How Lender Credits Can Cover Your Fees

Here's where it gets interesting. If you don't have cash for closing costs, you can ask for "lender credits." According to Chase, a lender credit is money your lender gives you to offset closing costs. The catch? You accept a higher interest rate in return.

The CFPB explains that lender credits work like discount points in reverse—they sometimes appear as "negative points" on your Loan Estimate. One credit (1% of your loan) might raise your rate by about 0.25%.

For example, LendingTree shows that on a $450,000 loan with $13,500 in closing costs, taking a $9,000 lender credit could drop your upfront costs to $4,500—but increase your monthly payment by about $60. Over 30 years, that adds up to roughly $21,000 more in interest.

This trade-off makes sense if you plan to sell or refinance within a few years. It doesn't make sense if you're staying put for decades. According to The Mortgage Reports, most homeowners don't keep their mortgages for the full 30 years anyway—they refinance or move within about 10 years.

The Bottom Line: Know What You're Getting

When a lender offers a "no points" loan, ask: "What about fees?" When they offer "no fees," ask: "What about points?" And when they promise "no closing costs," ask exactly which costs they're covering—and how much higher your interest rate will be.

The Farris Mortgage team notes that the zero-point/zero-fee option can actually be smart if rates drop later since you haven't sunk thousands into upfront costs. But if you're planning to stay in your home for many years, paying points and fees upfront often saves you money over time.

Your best move? Get Loan Estimates from at least three lenders, and ask each one to show you the same loan with points, without points, and with lender credits. Then do the math based on how long you plan to stay.