Mortgage? Should you pay mortgage points? Need a mortgage loan but not sure if you should pay discount points? What are points on a mortgage? Everyone knows what the interest rate means. The term is just how many years the mortgage is for, but what about points? Whenever I sit down to go over the ins and outs of the loan process, I am always asked questions about rates, term, and points. What are discount points? Is that worth paying? Are points different than discount points?
Different perspective! People ask what are the interest rates? That is a stranger question than people realize. I will use 4% for this example. The rate is the rate. 4% is 4%. When the mortgage rates go up, that means that it cost more to obtain a 4% interest rate. It may cost you 1/2 point (1/2% of the loan amount) it may cost a full point. It may cost 2 or more. When rates go down, it cost less or you may even obtain credit toward closing costs with a 4% interest rate. The more rates go down, the bigger the credit for the same 4%. Instead of credit at 4% you can choose a lower interest rate (with a lower credit of course). If it seems confusing, any loan officer can show you how this works with more accurate rates than I am showing here. That's how virtually all mortgages work.
As part of the whole loan process mortgage loan points explained properly can save you a lot of money over the term of your home loan. It doesn't matter which loan type it is and it's very common with FHA loans, VA loans, conventional and Jumbo loans. loan points will not only affect your payment but can also mean the difference in qualification and approval of a loan if the debt ratio is close. You can pay loan points if that will lower your payment enough to qualify.
In most loans the rate and fee work like a seesaw. If today's interest rate was 5% with no points, but you want a lower interest rate. What you can do is buy down the interest rate by paying discount points. Discount points are a certain percentage of the loan amount. Each point is 1% of the loan amount. So the fees go up, but your rate goes down.
There are many calculations that help determine mortgage points and whether paying loan points is a good thing. But first, you need to know what are points on a loan. Chris will help you calculate whether it makes sense or not and he'll teach you the whole loan process!
If you're going to be in the home for an extended period, it's very common and usually works to your benefit, to pay some points to get that lower rate. Understanding that 5, 10 or even 30 years of a lower payment, because you paid discount points up front, can save you a lot of money, often many thousands of dollars over the term of a loan. No true mortgage loan explained can be done properly without the proper explanation of what are points on a mortgage.
A lot of times people don't have enough money for closing costs. I can raise the interest rate .5% and will receive a 1.5% of the loan amount as a credit that goes towards closing costs. So, on a $400,000 loan if I raise the interest rate a .5% I'm going to get about $6,000 to lower your closing cost, and that's a big deal.
There are a few things that will affect your rate. Your rate is dependent on how much you put down, what type of program, and the all-important FICO score. So, the lower the FICO score, the higher the rate, the higher the FICO score, the lower the rate. Everything seems to work like a seesaw in this business. And this is not something that is only part of my company it is part of every company in the industry. All loan programs work this way. So, if you ever run into somebody who says, "Well they're charging you points." There is a reason we're charging you points. It's because we've given you a lower rate. But we will discuss this with you. I'm a walking calculator. I'm good at helping you figure out if you should buy down the interest rate. This is Chris the mortgage pro, and I'm going to help you fire your landlord!
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Want to buy a home in Rancho Cucamonga, Inland Empire, San Bernardino, Riverside, LA County and Orange County? Know that you’re getting the best deal and not making the rookie mistakes when it comes to buying a home. Call the pro.
Chris Trapani "The Mortgage Pro"
Commerce Home Mortgage
8311 Haven Ave, Suite 210
Rancho Cucamonga, CA 91730