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6. Deciding whether to pay higher "points" for a lower rate, or to pay less "points" with a higher rate. Here's another area that can unknowingly cost you a few
thousand dollars, if you're not careful.
Let's be real clear about this:
Points are pure profit for mortgage lenders. And they don't mind giving you a dizzying array of choices to select from. (You'll instantly understand why in just a second.)
Sometimes the banks and mortgage companies will have three or more options on the same basic mortgage program. 3 points at 8%. A point = 1% of the amount you borrow. No points at 8.675%. 1 point at 8.375%. On a $100,000 loan a point will equal
$1,000!
Mortgage lenders are not stupid.
They know that most people are not to swift at math.
Like the croupier at a Las Vegas gaming table, they're only too happy to take any money that you willingly leave on the table...because you didn't do your financial homework.
So how do you select the option that is best for you? I hope you weren't looking for a "rule of thumb" answer here. The ONLY way to make sense out of this is to run a comparison of the total up front charges, and ongoing interest costs, to determine
which choice will cost you the least.
DON'T LET THE BANK OR LENDER ZAP YOU ON
POINTS OR "ORIGINATION" FEES
When it comes to navigating and negotiating how many points to pay, the "right" answer will largely depend upon how long you plan to stay in your home before you move.
In other words, you need to determine how long you need to stay in the home to recover the cost of paying higher points, offset by the benefit of a lower interest rate. (Or, what is the least amount of time you should stay in the house, to warrant paying
lower points but electing higher interest rates.)
REMEMBER: points and origination fees are direct sources of profit for the lender...just like "dealer mark-up" on a new automobile. So, don't just roll over and pay them because you think you have to. Shop carefully and shrewdly to make sure that you get the best mortgage rates and terms that you possibly can.
You need to carefully calculate the numbers to see which options are best for you. (Running the math is the only answer.)
We can help you with this too, if you like.
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