What is your impression of "points" on mortages?

Question

Do you understand how they work? Do you perceive them as a good or a bad thing?

Whoops. Typo in the word mortgage! :o)

Answer 1

Points are good or bad depending on your financial situation. I use them to my advantage when selecting the best possible mortgage for me at the time the mortgage is made.

If I have the money to pay the points and fees it is no problem, I normally would pay them. The interest rate is normally lower and some of the fees as well as the points are tax deduct able from your federal income tax over the life of the loan.

There are times when you might take advantage of the no point no fee mortgages that are offered. Just remember that the lender and/or broker are being paid by some. This type of mortgage normally have a higher interest rate to cover the points and fees. Normally the only tax write off you have is the interest paid, because you did not pay the points and fees up front. Therefore if you did not pay the fees and points up front you may not deduct them from your federal income tax .

Of course you should consult with your tax consultant so you may work out the best financial solution to you at the time you take your mortgage.

I perceive them as a tool to use to my advantage under certain circumstances, good or bad will be determined by what you can afford when you get your mortgage and what financial state you are in.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 2

Paying origination/ broker fees or points is generally a good thing if you are planning on staying in the home for 3 or more years. Basically as a mortgage broker I can get paid by either charging fees or points up front, or receiving yield spread premium or YSP from the bank I place the loan with, or a combination of the 2. Basically I have a dollar figure or % in mind when doing a loan and I will get that figure one way or the other. By paying points upfront it allows me to give my borrower a lower interest rate as I don't need the YSP from the lender.
It is fairly easy to qualify paying points by asking what the rate and payment is with points and without points. Take the cost of the points, 1% is a general amount, and divide it by the amount of difference in the 2 mostly payments. This will give you the number of months to break even on the points.
EXAMPLE:
Loan amount: $150,000
Points/ origination fee: 1% of $1500
interest rate: 6%
payment: $899.33

No points interest rate: 6.375%
payment: $935.80

payment difference monthly of: $36.47

1500/ 36.47 = 41.13 months to break even.
This is telling you if you plan on living in that home longer than 41.13 months or just under 3 1/2 years, it is in your best interest to pay the points upfront. This will make your total out of pocket cheaper to you over the full term of the loan by $11,629.19.

You can use this same simple formula to whatever you are being quoted as well. As a side note, conforming rates are currently at 5.875% with point(s), and 6.25% without point(s).

Answer 3

Points are great.If I were to bring in a loan to a lender I would keep the points as a commisssion.
For example, If you bought at $550,000 and your loan were $510,000 with 2 1/2 points, the commission would be $12,750. Now that's nice isn't it. I would be nicely impressed. Secretly, I would be grumbling because I'd probably have to give half of that to the loan broker. What's your impression of that?

Answer 4

As a Realtor, I feel that points overly complicate the already complex process of buying a home. Many home buyers do not understand what points are, what 'buying down' means, and how points work. It breeds a sense of distrust in the lending industry, because to many buyers, it is a way for lenders to either line their pockets or not truly disclose what the interest rate is.

I would love to see points go the way of the dinosaur.

Great question!

Answer 5

I have done it both way. Got a loan with points and got a loan with out points.
1st...how is your rate? I would only buy points which lower your rate if you are staying in the house for more than 10 years. If you are not sure, you can always refinance in 5 years or longer.....
I would not buy them again because I have good credit and a good rate from the bank.
So that is how it works....anything else you need just ask.
Good luck,
James

Answer 6

Points are neither 'good' nor 'bad'. They are just numbers. Basically, by buying points, you are buying down the interest rate on your loan.

I'm not a financial analyst, but my understanding is the longer you are going to keep your mortgage, the more it makes sense to buy points.

Basically, you have to run the numbers. Create a basic spreadsheet in Excel (it's pretty easy).

Good luck!

Tim

Answer 7

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