Simplified explanations of common mortgages and loans
- Conforming Loans
- Construction Financing
- Conventional Loans
- FHA Loans
- First Time Homebuyer
- Mortgages for Foreigners
- HARP Refinance
- Interest Only
- Jumbo Loans
- Reverse Mortgages
- Second Home
- VA Loans
Various articles explaining the variations and implications of a commonly used mortgage terminology.
What are mortgage points?
When is 1 point worth .125?
Mortgage Loans points defined in laymans terms; Points in the mortgage loan industry can be explained easier as having a dual definition.
Let's first explain it from an interest rate prospective. One point is equal to 1/8 of a percent. The difference from a 5% interest rate and a 4.75% interest rate is 1/4% or written as a 2 point spread (difference). A borrower who only qualifies for a rate of 5% but would like to have a smaller monthly payment can buy discount points. So buying 2 points would give them the 4.75% interest rate reducing their monthly payment.
The second part of the term point or points is the dollar value of a point. Let's stay focused on the dollar amount of the loan. The cost or value of each point is a percentage of the total amount of the loan. 1% of a $200,000 loan amount is $2,000, so if the borrower wanted to reduce their interest rate from 5% down to 4.75% they would pay the value of two points, in this case the value or cost of two points on a $200,000 loan would be $4,000.
Points should always be a choice for the borrower and never an excuse for a bank representative or mortgage loan originator to make more money.
A borrower should always know the breakeven point on a loan for the point to be effective. Example; the breakeven point for cost of the 2 points on a $200,000 for a 30 year fixed rate mortgage loan may be at the seven year time frame in the loan. If the borrower pays off the mortgage loan by either selling the property or refinancing the borrower will lose money. If the borrower keeps the mortgage loan beyond the breakeven point they will be saving money on the total amount of interested paid during the life of the mortgage loan
On a more complex side, with good strategies and the proper combined use of points, origination fees and adjusted origination charges a borrower can have addition options they can use to adjust their monthly payments or have a lender credit issued to reduce the amount of funds needed for closing.
At Solutions First Mortgage Inc. we believe a well educated borrower given the right options can choice the best mortgage loan program for their needs.
Loans Available in Florida
For further information about getting the right mortgage for you and to arrange your 'NO-FEE ASSESSMENT'
CALL US on (+1) 941-921-1110
Reverse Mortgage Purchase
Construction Loans Interest Only Second Home Vacant Land Financing
Home Buying - understanding the buying process
Keeping in order – the paperwork process
Different loan types
Rent vs own
Mortgage Rates Locking in interest rate
Purchase strategies Pre-qualification vs Pre-approval Avoidable Expenses
READ THIS FIRST
Qualifying for a mortgage
Zero down – VA, USDA & seller concessions
Contractual Finance Clauses -
Loan and Mortgage types
Settlement cost – What is the HUD1?
Good faith estimate – the maximum cost to obtain the loan
The Til – Truth in Lending
RESPA – Real Estate Settlement Protection Act
Mortgage Insurance - PMI
Disclosures – Understanding Disclosures
Servicing – Banks
Economy/ Markets – the impact on rates
Fannie & Freddie – why they important to you
Credit Score – How credit score affect your interest rate
Read our blog about everything involved in finding, buying and living in your new home from a mortgage brokers perspective.
Read my opinions about legislation, what it means, how I understand it and how it could be improved.
We have online newsletters and classes explaining in layman’s terms how mortgages work and how to choose the best one for you