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confused with points

I have been shopping around for rates.
Lender 1. For jumbo loan giving 4.375 with 20% down and 4.25 with 25% down payment.
Lender 2. started using lots of technical jargon what I understood he will give rate of 3.875 but i have pay a penalty of 1/8th point, which would be $780, while closing costs will be $3800.

Totally confused how the rate is much lower and how come he is charging me a penaly. I tried to read on points by googling  it. What I understood you get points if you don't give 20% down. you can ask for discount points though.

Any clarification will be appreciated.
  • May 21 2012 - US
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Answers (3)

Get a Good Faith Estimate and compare the total closing cost.  I would ask for a No Closing Cost option.
  • May 22 2012
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I think you may have misunderstood what loan officer 2 was communicating to you. It's not a penalty (it's probably a pricing adjustment).  Which results in you having a cost or a .125% discount point (points aren't tied to what you put down.).  You get some form of mortgage insurance when you don't put 20% down.

The question I have for you is what were the closing costs quoted by lender 1. You don't have enough information to compare the two offers. Also are both loans 30 year Fixed Jumbos (or is one an ARM)

 But Jumbo loans are a portfolio product so you are more likely to see a variance in Jumbo pricing compared to Conventional Pricing.
  • May 22 2012
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You can pay "points" (a percentage point of the loan amount) in advance to lower the interest rate.  Do the math, sometimes paying points is cheaper than a higher interest rate.
  • May 22 2012
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