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Old 02-18-2009, 08:36 PM
 
161 posts, read 551,100 times
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As far as I can tell how is it any different than simply increasing your down payment and borrowing less? Maybe I'm missing something, I haven't looked too closely at this but all the explanations I've seen are sort of vague.
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Old 02-18-2009, 08:43 PM
 
Location: Austin
7,078 posts, read 16,903,265 times
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Buying points is just "pre-paid interest" on the loan. Instead of a 5%, you buy a point and you're mortgage is only 4.875% or something like that. 1/4% is usually considered 1 point (though it's not always 1/4). If your loan amount is $300,000 then it would cost you $3000 to buy your interest rate down. Then, calculate what the principal and interest payment would be for both rates, and divide that number into the $3000 it cost you. How many months does it take to make up the difference? If you know you're not going to live in the house the amount of months it takes to make it up, it's a BAD idea!

For example, you save $150 a month to buy it down and that takes 20 months. You're probably going to be there longer than that, so it's a good investment. Say you only save $50 a month. That takes 60 months to make up the difference. You HAVE to live there 5 years to break even. Is it worth it? What if you move after 4 years? You gave the lender free money...
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Old 02-18-2009, 08:59 PM
 
Location: Cary NC
553 posts, read 2,082,426 times
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Quote:
Originally Posted by movingover View Post
As far as I can tell how is it any different than simply increasing your down payment and borrowing less? Maybe I'm missing something, I haven't looked too closely at this but all the explanations I've seen are sort of vague.

I am a licensed mortgage broker (FYI)

First you need to know what a point is. A point is a unit of measurement. One POINT is always equal to 1% of the loan amount.

Unfortunately the word "Point" can mean different things because people in our industry throw it around to inaccurately describe other things.

Loan origination fee is a fee paid to the loan officer for work performed.
This is also sometimes called a point or points if it exceeds 1% of the loan amount.

Some states require loan brokers to call the loan origination fee a "broker fee" even though it means the same thing.

Discount point or points should really only be a fee paid to a lender (B of A, Wells Fargo etc..) to secure a lower rate than is being offered. Example: You are offered a rate of 5% but if you agree to pay a discount point then the lender will collect this fee at the closing of your loan and in exchange you will get a lower interest rate. In this case you might get a reduction of .25% -.375% making your rate 4.625% or 4.75%. This fee must go directly to the lender and cannot go to a broker. Us brokers normally receive compensation from the lender called yield spread premium (YSP). During the real estate boom some brokers were telling borrowers if they pay discount points it will lower the rate. Reality is the broker reduced their YSP and called it a discount point. Seems like it would be the same thing but it is not. If you are a broker it is a loan origination fee or a broker fee. Discount points can only be paid directly to the lender and nobody else. A lot of brokers did not know this and found themselves in a bit of trouble.

Best thing you can do to clear this up is go to HUD website and they have downloadable information called "Buying Your Home Settlement costs and other helpful information" Here is the link: Settlement Cost Booklet - HUD (http://www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm - broken link)

Go to part III

Make sure that if you pay these discount points that you will live inthe home long enough to recoup your costs in a reasonable amount of time. Reasonable would be no more than 36 months. If it takes more than 36 months don't pay the discount point.

If you cannot find it ask your loan officer. If you still cannot get it send me a PM and I will e-mail you a copy of it in PDF.

Last edited by deuterdu; 02-18-2009 at 09:07 PM..
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Old 02-19-2009, 06:38 AM
 
Location: Williamsburg, VA
202 posts, read 620,836 times
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As a seller, would it provide an incentive if I were to offer to pay the point for my buyers? So, for example, instead of lowering my price by $5000, I offered to pay a point (about $5000). Which would end up better for the buyer or does it still depend on how long they intend to live in the house?
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Old 02-19-2009, 06:41 AM
 
Location: Cary, NC
31,621 posts, read 55,349,802 times
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Quote:
Originally Posted by Aibutiej View Post
As a seller, would it provide an incentive if I were to offer to pay the point for my buyers? So, for example, instead of lowering my price by $5000, I offered to pay a point (about $5000). Which would end up better for the buyer or does it still depend on how long they intend to live in the house?
It still depends on whether they will live there long enough to benefit.

And PRICE is what gets traffic. I would not build any incentives into the list price so that the property is listed at an artificially high price.
Get them into the house and let them see how great it is.
Then negotiate the deal.
Figure that most buyers are going to ask for some form of concession anyway.
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Old 02-19-2009, 01:17 PM
 
Location: Wake Forest, NC
835 posts, read 3,529,361 times
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Here's an simple example of how points work on a 30 year fixed rate loan.

5.375%- no points only generic closing costs.
4.875%- 1 point(to broker) plus generic clsoing costs.
4.50%- 2 points (1 to broker and 1 to lender) plus generic closing costs.

What's best for you is a simple math calculation. How many months will it take through payment savings to recoup my initial (points) investment? The rule I give my clients is 1.5 times this number, for example is break even is 24 months and your plan is not to be in the home for at least 36 months then pass on paying points.

People get hung up on either rate or closing costs, but rarely take the time to sit back and objectively look at their options. You are an individual and must make solid decisions based on your goals and plans. Just because a neighbor tells you they got a no closing cost loan doesn't mean it was what was best for them, but it sounds good at the backyard cookout as does the friend who got 4.375% by paying points (that they don't mention) even though it wasn't the best loan for them.
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Old 09-04-2014, 02:55 PM
 
1 posts, read 4,303 times
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A borrower is purchasing a home for $250,000 with a 20% down payment. The loan has a 1% origination point and two discount points. What is the total dollar amount of the discount points charged to the borrower?
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Old 09-04-2014, 03:04 PM
 
3,318 posts, read 7,259,582 times
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Quote:
Originally Posted by matthew.ernster View Post
A borrower is purchasing a home for $250,000 with a 20% down payment. The loan has a 1% origination point and two discount points. What is the total dollar amount of the discount points charged to the borrower?
What is $4,000.
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Old 09-04-2014, 03:22 PM
 
Location: Southern California
4,350 posts, read 4,937,863 times
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For the daily double what is the total amount paid in points?
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Old 09-04-2014, 03:59 PM
 
3,318 posts, read 7,259,582 times
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I'm gonna say Who is $6,000?
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