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.