When talking about mortgages, “points” is usually a term with a negative connotation. However, not all points are created equal and certain types of points can actually be beneficial to the borrower by lowering their rates. When comparing mortgage rates, you should have a general idea of what points may be applied to your account and how much you can expect to pay back to lenders.
Both discount and loan origination points are paid at the time of your property’s closing. When you pay a discount point, you’re making an upfront payment in an effort to lower your interest rate. Each discount point costs 1 percent of the total loan amount. As an example, for a $280,000 mortgage loan, each point will cost approximately $2,800. For each point you pay, your mortgage rate will be lowered anywhere from one-eighth to one-quarter of a percent. For instance, a buyer who pays two points on a $300,000 mortgage with a 5 percent interest rate would end up paying $6,000 upfront and lowering the interest rate to possibly 4.5 percent.
Loan origination points are assessed to compensate the lender who is providing you with the mortgage. Several factors go into determining how many origination points you’ll need to pay: amount of down payment, length of mortgage, and a credit evaluation. An origination point is also calculated at 1 percent of the loan amount. If a lender informs you that two points are required on a $350,000 mortgage, $7,000 will be your responsibility. Keep in mind the number of origination points is sometimes negotiable.
Contact the experts at Midland Mortgage today to learn more about your obligation when it comes to paying discount and origination points.