Mortgage Points

The second type of point is called a “discount point.” This point is offered by the lender in exchange for a lower interest rate. The more points you pay at closing, the lower the interest rate you pay during the life of the loan. Different banks have different formulas but generally you can expect to see a decrease of about .250% in a fixed rate interest rate for every discount point you are willing to pay. You may find some lenders willing to negotiate the decrease in interest rate offered in exchange for your discount points. Smart buyers recognize discount points can also be obtained in less than full point increments. A discount rate of 1.5% on a $250,000 mortgage, for example, would require an additional $3,750 at closing. Unlike origination points, discount points are usually tax deductible if you itemize. See your financial advisor to confirm the tax advantages before you chose your loan.

Understanding the definition of points is only part of the challenge. Now you must determine which loan alternative is best for you and your family. The decision to pay points is really based on your individual circumstances. Two key questions you must ask yourself are:

A quick review of your financial situation can help answer the first question. The second can be a bit trickier. Take for example, the three loan options offered below by a single lender for a $250,000 mortgage:

Which loan should you chose? To receive the $41 monthly payment discount offered by Loan B buyers would need an additional $2,187.50 at closing. Is it worth it? Absolutely …. providing of course that you retain the property at least 54 months (or 4.45 years). This is the amount of time you would need to break even on the extra money paid at closing. Loan C would require $4687.50 at closing based on the 1.875 points offered. Since the monthly payment is discounted $82, you would need about 58 months (or 4.76 years) to recover the money you paid toward points for this loan. As you can see, if you anticipate moving within the first few years of your loan, discounted points may not be your best alternative. Seek out a lender who will take the time to find the best loan to meet your personal needs.

Getting to the point …. It really is about more than interest rates. As you shop for your real estate loan remember to look at the fine print and compare loans across all terms. If you would like more information about this or other real estate related topics, call John Carter in Lakeland, Florida at (863) 529-7488.

As you shop for your real estate mortgage be sure you understand the impact that “points” can have on your bottom line. Generally, you can think of a point as 1% of the total mortgage amount. For a $250,000 mortgage that would translate into a charge of $2,500 that you would need to pay at closing in addition to any other down payment or closing costs.

Getting to the POINT

It's not all about the interest rate

John Carter,

My Lakeland Realtor

Call Any Time, Any Day

(863)

529-7488

With the financial obligations of the down payment, closing costs, and general relocation expenses, how many points can I afford to pay?

Will I recoup the money I pay in fees before I sell this property?

Points

Rate

Monthly Payment

Loan A

6.875

$1642

Loan B

.875

6.625

$1601

Loan C

1.875

6.375

$1560

John Carter is a Coldwell Banker Realtor in Polk County Florida specializing in residential sales.

or call (863) 529-7488

In the mortgage industry, lenders may offer or, at times, require one of two types of points. The first is often referred to as origination points. As the name suggests, these are fees charged by the lender in an effort to recover the costs associated with originating your loan. The compensation of your loan officer is often based on this amount. Other times, preparation fees, notary costs, and inspection fees are included in the origination points rather than itemized in your mortgage statement. Some lenders are open to negotiation of these fees while other lenders don’t charge them at all. Usually, origination points are not tax deductible. As you compare real estate lenders and loan offerings, keep this “point” in mind so you understand the impact to your bottom line.

A Point is defined as 1% of the total mortgage amount.