what are points?

[chica]

Ok, so the title line says it all: What are points? In terms of being associated with a mortgage. I think they are used to somehow figure out rates, but, yeah, actually, I have no clue. Also, what is a decent/good deal in terms of the way they are figured into your mortgage?

Also, if you get pre-approved through one lender, do you have to use them? I realize that if you don't, you have to go through the credit check again and all that, but what do you all think?

Muchas gracias!

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[Sol Rosenberg]

1 point = 1% of your loan amount. You can "buy down" your loan interest rate by buying points. There are calculators that will crunch the numbers and tell you if what you are being offered is a good deal. However, the biggest variable in all that is the length of time you will have the loan. Points can be called many things like "origination fees," "discount points," etc but they are all points.

As a general rule, you shouldn't really consider paying points unless you put 20%+ down on the property, and are planning on being there for "a while."

As an answer to your other question: You absolutely do not have to use any lender for any reason. Go with the one that gives you the best deal (even after you are pre-approved, even up to a week or two before you close on your house -- if a better deal comes along (but make sure that the new lender can close your loan in the time remaining))

 

[mshheaddoc]

Points Points are fees the borrower pays the lender at the time the loan is closed, expressed as a percent of the loan. Usually its a fee that the lender charges. Obviously the lower the points the better. One thing about points is that often they are used to "buy down" your rate where you will get a cheaper interest rate if you "pay more points". They should be able to give you the breakeven analysis when you buy down the rate (they should tell you with how much you are paying and the differences in the rates, how long it would take for you to make up the difference in buying down that rate).

Example: You want a house for $100,000. Say that you got a rate of 6.0% but if you buy down that rate a point (1.0%) that the rate would be 5.75%. So your payment for the 6% is $ 599.55 and for the 5.75% is $583.57.

If that rate costs you 1 point (or $1000) and the difference in the payment is $15.98. You take $1000 and divide it by $15.98 and get 62.58. That is the number of months it would take for it to break even on buying the rate down (be worth your while to do it). If you aren't going to be in your house for 5 years then its NOT worth it.

We are going to buy down our rate because it will take only 4 years to break even and we plan on being in this house for about 7 years.


Also if you get pre-approved you are by under no means obligated to use that lender. I would shop around because most likely if they are charging you points its not a good deal (just my opinion). We found a lender with no points on a physician loan, most of the physician loans DO have points but there are some good ones. Search mortgages on this forum and you will find A TON of information from the past year or so!

 

[chica]

ooh, helpful! So, do you have to buy down your rate at closing or can you do it later on? I'm guessing only at closing.

 

[mshheaddoc]

buy at closing but if your rate is "locked" then you don't have to worry about it.

 

[Sol Rosenberg]

ooh, helpful! So, do you have to buy down your rate at closing or can you do it later on? I'm guessing only at closing.

buy at closing but if your rate is "locked" then you don't have to worry about it.

I think the question she was asking was whether you could buy points after the loan closed. The answer to that question is no.