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Old 02-01-2008, 02:28 PM
 
Location: Dallas, NC
1,703 posts, read 3,739,276 times
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Can someone explain what this is in simple terms? Thanks!
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Old 02-01-2008, 02:57 PM
 
Location: NC
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A point is defined as 1% of the loan amount. 1 point on a $200,000 mortgage is $2000.00. Simple, huh?

Now when speaking of mortgages, there are two types of points, origination points and discount points. Origination points are paid to the bank, lender, broker, whoever and that is a fee of theirs, money to them for doing the loan.

Now a discount point is used to "buy down" the rate, or get a lower rate. For example, if rates are going at 5.5%, you might be able to pay 1/2 a point to "buy" the rate down to 5.25%. How much it costs to buy a rate down fluctuates daily, so the above is just a "for instance".
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Old 02-01-2008, 04:52 PM
 
372 posts, read 818,645 times
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Chip is dead on... and I'll add the following:

When deciding if you want to pay for discount points you need to consider how long you're going to hold onto the property, and how long you think it will take to pay off the mortgage.

For instance, if you can qualify for a $100,000 mortgage of 30 yrs fixed, at 6% your monthly payment (principal and interest) is $596.57. If you pay down two points to lower your rate by 0.5% your new payment will be $565.20, saving you $31.37/month.

Those two points cost you $2,000 up front, but give you a monthly savings of $31.37. If you don't consider inflation or deflation, then it will take you 64 payments to recoup your $2,000 in points. Therefore if you plan to own the house for over 5 Years and 4 months without completely paying off the mortgage, it's a good decision to pay the points. If you think that you'll sell before 5 years and 4 months or pay off the mortgage faster, the points aren't worth the fee.
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Old 02-04-2008, 02:38 PM
 
Location: Dallas, NC
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I just remembered I posted this on Friday! Thanks for the responses. Makes total sense now!
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Old 02-04-2008, 04:06 PM
 
Location: Charlotte, North Carolina
5,137 posts, read 16,048,245 times
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say no to discount points!
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Old 02-04-2008, 06:39 PM
 
Location: CNJ/NYC
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Quote:
Originally Posted by renriq02 View Post
say no to discount points!
Why? Sometimes they are worth it.
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Old 02-04-2008, 06:54 PM
 
Location: Charlotte, North Carolina
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not when the rates are dropping...

I would only recommend paying it IF the borrower is getting Par rate.
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Old 02-04-2008, 06:59 PM
 
Location: CNJ/NYC
1,240 posts, read 3,856,467 times
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Quote:
Originally Posted by renriq02 View Post
not when the rates are dropping...

I would only recommend paying it IF the borrower is getting Par rate.
I agree, but that's not "say no to discount points!" (yes, I know, I can be annoying this way)
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Old 02-05-2008, 09:16 AM
 
Location: Dallas, NC
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I wouldn't get them b/c I'm getting a good rate. I was just curious b/c I keep hearing people on here talk about them. Thanks!
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