Real Estate Investment and Mortgage Financing Resources
Points or not to Points
Mortgages can have many terms that are determined based on the clients personal financial situation. But should you pay points above and beyond the interest rate or not?
Points are a single payment that are paid on the percentage of the loan amount. For example, let's say you take out a mortgage of a total of $200,000 and you have to pay 3 points. You must pay a total of $6,000 in points to a lender. The lender is the person who supplies the money so you can buy the house in consideration. Your total interest rate may be lower, however, for paying these one time, up front fees.
You may want to consider taking a slightly higher interest rate that will end up less than these one time fees. Often, points are considered extra bonuses for the broker. Points are usually considered extra income on a deal. You can get a lower interest rate by paying these one time fees, however, it may not be the best option.
You need to accept the terms that best fit your situation. Try to get the lower interest rate without the points. Mention your positive attributes as a borrower and see if they won't forget the points. Usually, if you have decent credit, and some money on had, you can really negotiate.
If you have bad credit or some problems with income to debt ratio, then you may have to pay the points that the lender is requiring. Your negotiating power will definitely decrease if your credit is not up to par.
In every situation, try not to pay points! They are usually accepted as exchanges for a lower interest rate. However, you may not pay less than if you have a slightly higher interest rate.
Points for an amount of 1 or 2, may be worth it because the total payment of the one time fee may be less than the total amount paid in interest above the rate that is made.
If presented with mortgage terms that are not satisfactory to you, work on negotiating new terms. Delete the points and extra fees, and ask for a deal that fits within your financial situation.
There are many choices when it comes to mortgages. Whether or not you use an adjustable rate mortgage or fixed rate mortgage, be sure to understand all terms that you may agree to. If the lender is not willing to give you an itemized report about the mortgage, then ask to see exactly where your money is going. Don't ever sign papers without representation or reviewing the before the closing so you know exactly what it is that you are accomplishing.
Points are generally negative aspects of a mortgage, so don't pay them if you can negotiate the terms without points in your favor.
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