Points Charged or Earned by Your Mortgage Source

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What Are Points and Why Do I Have to Pay Them?

Points Charged or Earned by Your Mortgage Source

Points charged for a mortgage loan are always a sensitive issue, as they should be. The true cost of your loan will increase as the points increase. Since one point equals 1 percent of your mortgage amount, the larger the mortgage you want, the larger the cost will be. Be aware that different mortgage sources might quote this fee as points, loan discount fee, or loan origination fees. But these fees are really the same item stated differently. For instance, if your mortgage source tells you that this loan will cost one point and a one per cent loan discount fee, he/she is saying there are two points to be charged for this mortgage. Unless you are in a “high risk” category, the more points attached to your loan should translate to a lower rate for every point or portion of a point you pay.

There is another related factor that you should investigate. Many mortgage lenders will pay a mortgage source one or more points directly at closing if the originator delivers the mortgage at a rate slightly higher than the minimum rate the lender requires. While this is not a fee that will come directly from your funds, it is technically a cost to you. If your mortgage originator is earning one or more points “on the back end” of your loan, it means that you could have received a slightly lower rate than the one you will pay. Hence, over the term of the loan, you will pay more interest than you would have if your loan was delivered at the lender's minimum acceptable rate.

   

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