What do "Points" Mean??

Question

What do points mean when applying for a mortgage loan? Is it better to have 0 points, or to have a lot of points??? How will points affect my loan?????

Answer 1

Here my version:

Purchase:
No Money Down = Orignation Points charged into the Interest Rate. So at PAR or 0 points an interest rate maybe 6% the Loan Originator charges a 1pt origination fee so he will give you a 6.5% to make his 1% on the loan.

If you pay the 1% than you should get the PAR rate or in the example above 6% over the 6.5%. Now if he charges you 1% and than charges you 6.5% Interest Rate than he has made 2pts or 2%. If this is in a purchase and you are not paying closing costs than kudos for him/her. If you are paying the closing costs than tell him/her no deal.

Refinance:
Same as above. But you have Discount Points which are good in todays market if you have enough equity. What this means is:

5.875 (-1.0)
6.00 0.0
6.5 1.0

So how does this work well you are charged the regular 1pt by the LO for origination. Than you are given a 1pt Discount charge by Lender for BUYING DOWN THE RATE. Which is only 1% of the Loan Amount. Is this worth it. Heck yeah. Especially 30 year fixes. Those in short term arms can take advantage of that same rate by buying down the rate. Its a lot of informaiton I hope I explained it easier. Any questions email me. Good luck

Answer 2

There are two types of "Points"

1) Discount Points
2) Origination Points

Mortgage BROKERS can charge origination points which is their commission for doing the loan. 1 point = 1% of the loan amount. If your credit scores are good (over 600) you usually can get away with not paying points.

"Discount Points" are also 1% of the loan amount but are very different. These points are pre-paid interest and are tax deductible. They are used to lower your interest rate. The lender I work for; it's 1 Point = .35% so on a $100,000 loan, if your original rate was 7% and you paid 2 points, you would pay 2,000 and lower the rate to 6.3% (2 x .35 = .70 - 7% = 6.3%)

Both of these types of points can be built into your closing costs and paid through the loan.

Hope this helps!
Samantha

Answer 3

Points are good. Each point represents 1% percent of the amount you are borrowing. Generally, paying one point should lower the interest rate on a loan 1/4%, 2 points should lower you rate 1/2% and 3 points should lower the rate 3/4%. Lowering the rate reduces your monthly principal and interest payment.

Answer 4

A point is one percent of the total loan amount (i.e., on a $100K loan, one point equals $1K). If you do not have the money to pay the point/s up front, some lenders will finance them and you will then pay interest on your points. It will be merged into the duration of the loan. Hope that helps. Good luck and congratulations on your new home.

Answer 5

Each point is 1% of the value of your mortgage. Most companies will reduce your interest rate for each point you pay in advance.
Note that points are in addition to your down payment.

Answer 6

1st Simply said, it is another term for FEE, avoid them.
2nd if you do NOT plan on moving before the mtge is paid off, then it may be helpful to reduce the mtge rate.
3rd There are charts to determine the ratio for points / to / rate, but they do NOT take into count the TIME Value of money.
Time Value is when inflation & taxes kick in!
Good Luck & God Bless.

Answer 7

read tips on loans and mortgages on this site

Answer 8

This might help.
http://www.foxnews.com/business/personalfinance/realestate/points/index.html