Understanding Mortgage Points

When a mortgage broker asks a borrower to pay points, he or she is asking for a lending fee expressed as a percentage of the value of the loan. For example, two points on a deal worth $100,000 works out to $2,000.

Sometimes, a lender may require the borrower to pay "origination points" on a mortgage. This fee allows the lender to recover many of their costs sooner in the deal rather than waiting to recoup them as part of interest payments. Many lenders use origination points to advertise lower interest rates to potential home buyers. Though their interest margin is thinner, these institutions improve their cash flow by pulling in these profits on the front end of the loan.

Along the same lines, a lender may offer a borrower the chance to pay "discount points" to qualify for a greatly reduced interest rate on a new mortgage. In these deals, the customer can pay an extra percentage point or two of the loan's value as an upfront investment. In return, the lender agrees to knock the interest rate down by a quarter of a percent or more. Though the borrower surrenders more cash at closing, they enjoy tremendous savings over the life of the loan.

In this hyper-competitive, internet-fueled mortgage market, a handful of innovative lenders have experimented with "rebate points." They work very much like discount points, but in reverse. Cash-poor borrowers who want to purchase a home with little or no money down can receive a rebate of a percentage of the home's value. In exchange, they agree to accept a higher interest rate or a prepayment penalty. Though these deals work against the customer's long-term interests, they provide a valid solution for many prospective home buyers without the liquid capital needed to close the deal on a conventional mortgage.

Whenever dealing with points, borrowers should weigh all their available options to understand the best long-term deal for their situation. Home buyers with the ability to afford a large down payment and closing costs will usually benefit from paying discount points. Customers with spotty credit histories may have to lump origination points to a lender that's willing to run a manual underwriting review on their case.

Kevin Adelsberg is a writer for FasteMortgage.com. For additional articles and an extensive resource for everything about mortgages, please visit us at http://www.FasteMortgage.com

---

Decision Time: Home Equity Loan or Home Equity Line of Credit?

Home equity loans and home equity lines of credit continue... Read More

Refinance Online

If you want a low interest, low payment mortgage refinance,... Read More

Secured Loans ? Making the Most of Your Home as Collateral

My visit to the lender was interrupted with my wife... Read More

Foreclosure Scams To Be Aware Of

Homeowners facing foreclosure should be aware of unscrupulous lenders and... Read More

Know Your Mortgage Fees, and Youll Never Pay Too Much for Your Loan

If you buy new windows, you'll not only pay for... Read More

A Guide to the Best Remortgage Deals

Finding the best remortgage deals isn't always easy, especially with... Read More

Buy To Let Mortgages ? To Let in Reasonable Capital Growth with Financial Obligation

Every individual needs a home and every home needs an... Read More

Be Prepared With Your Home Equity Loan Checklist

A home equity loan can be an excellent way to... Read More

Buying a Home After a Foreclosure

Buying a home after a foreclosure is not an impossible... Read More

Reverse Mortgages: When Is One Right For You?

How do you know if a reverse mortgage is right... Read More

Home Loans: To Substantiate Financial Possibilities On Your Land

Availability of Home loans is in full bloom. They are... Read More

Choosing The Right Mortgage For You

This article will help you understand the differences between a... Read More

Sub-Prime Mortgage Loans - Things You Should Know About Sub-Prime Mortgages

Sub-prime mortgages are not that much different from average mortgages.... Read More

Using a Home Mortgage Calculator

There are a variety of tools online that you can... Read More

Save Money on Your Mortgage

You should say goodbye to PMI. You may not notice... Read More

Interest Only Home Loan ? Is It Right For You?

There are many benefits to interest-only mortgage loans. There are... Read More

Mortgage Tips For The Frantic

It is a curious fact of human nature that people... Read More

Home Equity Loans Popular Scams

Most borrowers fail to realize that when trading their much... Read More

High Risk Home Mortgage Lenders Online

Online high risk home mortgage lenders specialize in offering loans... Read More

Before You Buy

Before you start looking for a home, figure out what... Read More

Buying A Home? Reasons to Consider Financing Your New Home Loan Online

Financing your new home loan online can save you time... Read More

Mortgage Advice

In the US today more households have mortgages than ever... Read More

Home Loans ? Lenders Continue to Offer High-Risk Loans

Home prices in the Untied States continue to soar, and... Read More

Mortgage Soup

Looking for home mortgage loans can get confusing with the... Read More

The Truth About Shopping for Mortgage Rates

With so much lender advertising focusing just on rates, you... Read More

I Have A Slice of the American Dream and It is a 30 Year Nightmare

Well, we did it. We are buying a beautiful, brand... Read More

Reasons To Get A Home Equity Loan

Using a home equity loan really depends on what your... Read More

Keep Your Eye Focused on Treasury Bond Rates To Adjust Your Current Mortgage Rates

Mortgage rates typically are based off the current rates of... Read More

What is a Remortgage?

A remortgage is changing your mortgage without moving your home.... Read More

Selling Your Business Note

Before I go further, let me ask a question- if... Read More

Poor Credit Home Equity Loan Tips

A home equity loan can help repair your poor credit... Read More

Home Equity Loan ? Not Just For Home Repairs, And Tax Deductible, Too!

Thanks to the combination of low interest rates and skyrocketing... Read More

Uk House Price Increases Take A Summer Holiday

Property website Rightmove has released its latest house price index... Read More