RATES AND POINTS
Lenders and mortgage brokers will quote their loans based on the “rate” and “points”. The rate is the interest rate you receive on your loan. The point is the upfront cost that the associated interest rate will cost you. Relatively speaking, every lender or mortgage broker will have access to the same rates. The question to be asked is what the points are, which is the cost associated with that rate. 1 point equals 1% of your loan amount. This is a cost that you would need to be paid in addition to your closing costs. There could also be negative or rebate points. In this case the points would be a credit, which will be calculated into your closing costs. Below is a simple example of what a lender may offer
Loan Amount: $100,000
4.00% at -1.00 points = $1,000 Credit towards closing costs
4.50% at 0 points or par = $0
5.00% at 1.500 points = $1,500 additional added to closing costs
Once you have applied for a mortgage loan, your lender should update you on the current interest rates throughout the transaction. A daily update may look like the chart below.
Based off of a $100,000 loan amount
| Rate |
Points |
Cost in $ |
| 4.000% |
2.125% |
$2,125 |
| 4.125% |
1.375% |
$1,375 |
| 4.250% |
0.375% |
$375 |
| 4.375% |
-0.375% |
($375) |
| 4.500% |
-1.000% |
($1,000) |
| 4.625% |
-1.500% |
($1,500) |
Every lender generally has the same group of rates ( In this example 3.375% – 4.00%). What changes are the points and the cost. The points are a cost that is paid at the time of closing. It is an upfront cost that affects your annual percentage rate (APR). Generally speaking if you plan to keep a property for a long period of time then it is best to pay more in points.
* It is advised to consult with both your mortgage loan originator and your CPA when deciding if you should pay points.