I want to pay higher upfront fees (but not points) to get a lower rate on my mortgage. Any suggestions?

Question

I have an offer from a friend to pay all my mortgage costs (up to a certain amount), but not points to pay down my mortgage. I assume there is a difference?

Answer 1

Sure call me. I will charge you higher up front fees, and I'll call it a processing fee or a surcharge or a application fee or an underwriting fee. And I'll give you a lower rate on the mortgage and you can call it whatever you want. Bottom line is, if you are paying more upfront, to get a better rate, it is points. Negotiate. Have the broker charge a higher origination and ask for the lower rate. It is still the same thing though. Let me know if you want hel pon this, some "Friends" are better left as friends and let buisness be buisness. Good luck

Answer 2

confident, the fee you have been extremely given replaced into the fee without origination. once you asked for a decrease fee, they quoted you a "purchase down" fee. the fee of the purchase down commonly fees some million% of the very own loan volume for each a million/8th factor alleviation (.a hundred twenty five). some lenders could calculate it in yet differently, yet that's the main elementary in accordance with my adventure. basically be certain that they are explaining this to you completely. It feels like they're, via fact some shady lenders quote you the fee, fee a severe origination, and not inform you what this is for. A brokers fee is geared up into the fee, despite if the origination is $0.00 that's prohibited to fee a coupon fee and upload factors "on the back" (referred to as Yield unfold top type or YSP), interior a similar very own loan. This replaced approximately 3 or 4 years consistent with Federal lending policies.

Answer 3

The up-front fee that reduces your interest rate IS points. Why do you want to avoid paying points?? Points may be deductible on your taxes as mortgage interest whilst other fees are not.

Answer 4

Points are fees. I guess I don't understand the question.

Money paid down on the front-end is money in the originator's pocket. You could consider "down payment" or "points" a strong early indicator of a borrower's willingness and ability to repay the debt along with their credit history, income, and the collateral (i.e. house, car, boat, etc.) they are purchasing.

Therefore, it really doesn't matter.

Answer 5

I WAS PAYING A 8 1/2 % INT. RATE , THEN 3 YRS AGO I REFINANCED AT 5 3/4% MY MORGAGE PAYMENTS WENT DOWN 200 A MONTH.

Answer 6

Hello -

It might be that your friend is trying to explain what we call in the industry a 2-1 buydown loan program which had all but disappeared from the face of the earth for the last 7-8 years. However, it is a great loan program, especially in an increasing interest rate market.

This is a wonderful loan to sell to people who have Adjustable Rate Mortgages and are tired of escalating interest rates. It's also a terrific loan to sell when you have a flat or even an inverted yield curve.

Back in 1994 and early 1995, similar conditions existed in the mortgage market. People with Adjustable Rate Mortgages taken out in 1992 and 1993, in the 3.5%–4% range, had received two interest rate increases, which capped them out and put them in at around 7%–7.5%.

Many loan officers find this loan program very confusing. They don't understand how to calculate the formula, how it works, and cannot explain it to the consumer. I will describe the various calculations involved in a 2-1 buydown loan.

Essentially, you're taking the rebate money that is paid to you as the loan officer and using it to buy down the interest rate by 2% in year 1, and 1% in year 2 of a 30-year loan. By charging the borrower 1–1.5 points, which are incorporated into the loan amount during a refinance, you will make the 2-1 buydown rewarding for everyone involved.

Let's calculate the 2-1 buydown, step by step, using a $250,000 loan as our example. Let's also say that 7% on a 30-year fixed rate mortgage currently yields a 2.5% rebate. (Having done this calculation numerous times myself, I can tell you that, when figuring a 2-1 buydown, you want to aim for approximately a 2.5 to 2.625 rebate.) This is easily handled by the Loan Officer.

Step One: Your Loan Officer will look at their rate sheet and select the interest rate on a 30-year fixed rate mortgage that is currently associated with an approximate rebate of 2.5%. Let's say that rate is currently 7% and call that our cap rate.

Step Two: Multiply the $250,000 loan amount by 2.5%, which will yield a commission of $6,250. This represents the money that you have to play with as the loan officer, to buy that interest rate down for the consumer and create a very attractive loan program.

Step Three: Take the payment at 7%–the rate that yields the 2.5% rebate. At $250,000, a 30-year amortized payment at 7% would be $1,663.26. Drop the rate by 2% from the capped rate, which represents the "2" in the phrase "2-1 buydown."

Step Four: Now, having dropped the rate from 7% to 5%, figure out the payment for 1 year on a fully-amortized note on that same $250,000. The amount should equal a monthly payment of $1,342.05. At 5%, this represents a $321.21 monthly savings versus the payment of $1,663.26 at 7%.

Step Five: Multiply the $321.21 savings by 12 months because you have just bought the rate down 2% in year 1 on the 2-1 buydown. Essentially, this means that as the loan officer if you want to buy that rate down 2% for the client, you need to pay the lender the difference times 12. This total amount equals $3,854.52 and will be paid to the lender at the time of closing. Subtract this amount from the original $6,250 rebate money calculated in Step Two, and you should be left with $2,395.48.

To calculate the second year of the 2-1 buydown, simply repeat Steps Three through Five, dropping 1% from the cap rate for the $250,000 loan amount. This yields a monthly payment of $1,498.88. The difference between this 2nd year payment of $1,498.88 and the 3rd year payment at 7% of $1,663.26 is $164.38 a month. Once again, because it's for a second full year, you need to multiply that savings of $164.38 by 12 months.

This generates an additional savings to you the borrower of $1,972.56 in year 2 of the loan. You need to pay the lender that $1,972.56 out of the money remaining from Step Five. The total amount of money left over is $422.92, and this is the rebate you will receive as the loan officer. In addition, I usually charge the borrower 1 –1.5 points, which is incorporated into the loan amount during a refinance.

Did your friend say something like this?:

"Mr. Jones, there is currently a very attractive loan program available which you probably haven't heard of. In fact, even many loan officers don't know that this loan program exists. The loan is called a 2-1 buydown, and though it's a fixed rate mortgage, it acts, in certain ways, like an Adjustable Rate Mortgage."

"Your current Adjustable Rate Mortgage has an interest rate of 6.5%, and I know that you have become very uncomfortable with the interest rate increases over the last 12 to18 months. You've also become very concerned with the fact that you have a 10.95% life cap, meaning that your interest rate could feasibly climb as high as that if interest rates continue to rise. I have a solution for you that I think is quite attractive."

"This tiered, fixed rate program is fixed for the 1st year at 5%; fixed for the 2nd year at 6%; and fixed for the remaining 28 years of the 30-year loan at 7%. It caps out at 7%, almost a full 4% lower than the life cap that you have on this adjustable right now."

"In fact, Mr. Jones, over the course of the first 2 years, you're going to save yourself a substantial amount of money because cash flow will be improved immediately in months 1 through 12, with an interest rate of 5%. You'll save money in year 2 as well. The amount of money you will save can't be determined because as this adjustable that you currently have continues to increase, the savings will be that much more substantial."

"I don't want you to think of this as anything other than a tiered fixed rate product, Mr. Jones. There is no margin, there is no index, but there most certainly is a protective cap that minimizes the substantial risk associated with your Adjustable Rate Mortgage.”

If so, then this might be the program. It is important to work with someone whom you trust to advise you in one of the larges financial debts you will take on in your life.

There is much more to think about, then the typical person realizes. Please contact me if you have any further questions.

Answer 7

I think it's safe to say that Darren answered your question. ;)