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Please explain points.

  • December 13 2009 - Houston
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Answers (6)

Profile picture for NRL Mortgage
Discount points are fees paid to a lender at closing in order to lower your mortgage interest rate. While buying points is sometimes a good decision, many times the purchase costs you more than it saves.

How Much Do Points Cost?

The cost of each point is equal to one percent of the loan amount. For instance, for a $100,000 loan one discount point equals $1,000.

  • December 16 2009
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You can pay origination fee as points or loan discount fee as points, one goes to the broker and the other to the bank for the interest rate.  Both of these line items will impact your interest rate.
  • December 14 2009
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When referring to Points on Rate, if you are getting the Rate at Wholesale Par, there will usually be a small cost or small rebate. Very few are at a 0.000% Cost/YSP for any given rate.

Don't ask for a "No Point" Loan. Ask to see some Wholesale Lender Rate Sheets. That way no one can "pull the wool over your eyes."
  • December 14 2009
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Points:  A percentage of your loan amount.  1% equals 1 point.

This can appear as an Origination fee or Discount Fee.  In Texas, it's standard to pay a 1% Origination fee.

When looking for mortgage rates, you'll always want to ask for a rate with "no points".  This means that a lender must quote you an interest rate that doesn't include additional fees.

If you are willing to pay a point or two, a lender can quote you a lower interest rate.  There is no equation in place for points... meaning that 1 point equals .25% lower in rate... it just doesn't work that way.

The best way to go about it, is to ask for a rate with no points and 1 point.  You can determine for yourself if it's worth paying the extra money for a lower rate.
  • December 13 2009
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Great question!  The term "points" are generally associated with the fee paid to the bank for the purpose of discounting the interest rate on your mortgage.  One point is equal to 1% of the mortgage. This fee is paid at the time you take out the loan, commonly referred to as "closing."  How much the bank will discount your mortgage interest rate depends on the current rates and the bank.

It is important to remember that while you pay this fee is tax deductible in the year that you purchase a home. 

For more information, you might want to go to http://loanlane.com/loanpoints.html.

Good luck!
  • December 13 2009
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You pay up front to get a lower rate.
  • December 13 2009
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