2 Questions: Does the "No Cost" loan really mean "No Cost"? Why would I want to pay points?

Answer: While a "No Cost" loan certainly can devoid you of the traditional costs (Closing costs)of obtaining financing commonly including: Title/Escrow Fees, Appraisal Fees, Point(s) or Discount Fee(s), Processing Fees & Lender fees. This doesn't mean it won't cost you. 

Take for example a 30 year fixed mortgage at 4.875% on a $250,000 loan amount. This loan has NO Closing Costs   The interest you pay over the life of the loan is $225,928

Now for the same loan at a lower rate of 4.625% you would have $4350 in closing cost. However you would only have $212,398 ($13,530) in total interest and the lower rate would save you $38 per month ($13,680 in life payment savings). 

While the savings over 30 years are noteworthy before you go spend your hard earned money in the bank lets consider some variables. 

• How long have you been in the home /How long you plan to be in the home?
• Are you going to refinance again in the future? Adjustable Mortgages, Balloons, Construction Loans etc may cause you to refinance in the future. Historically the average life of a loan is 7 years. Lower rates may stretch that figure out.
• Do you have the savings or equity necessary to pay the closing costs? Does it cause a hardship by using those funds?
• Can you invest those savings to further increase your savings? 
• What rate of return do those funds (used for closing costs)currently create for you?

This is just one area a seasoned mortgage professional that is looking after what's best for you will bring to light.