Real Estate Articles for Buyers and Sellers

Pointers on Points

What is a point? A point is a loan fee equal to one percent of the loan amount. In "lender language," there are two kinds of points: discount and origination points. A discount point is a loan fee that reduces the loan's interest rate. An origination point is a loan fee that represents the lender's profit for "originating" the loan.

Let's look at a typical rate: 8% 0+1. Translated, this means that an interest rate of 8% costs you zero discount points and one origination point. If you'd like a lower interest rate, you can "buy it down" with one or more discount points. A lower interest rate can be a benefit if you'd like to qualify for a larger loan. On the other hand, paying discount points may be an unwise investment if you refinance or sell your home in the early years.

A one-percent origination point is typical. However, if you wish to minimize your closing costs, it can be waived if you accept a slightly higher interest rate.

Both origination and discount points are paid at closing, usually by the buyer. A seller or new home builder may pay a point or two in order to reduce the buyer's closing costs or help the buyer qualify for a larger loan.

Loan programs, interest rates and fees vary from one lender to another, so it's wise to interview at least three lenders. Be sure to get a good faith estimate, in writing, of all fees and loan closing costs.

For recommendations of lenders who consistently provide superior service and excellent rates, please call me.

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This article is not intended to provide specific advice, but rather to provide insight into matters that we feel are useful. As always, seek professional advice prior to taking any action.

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