Mortgage Revived

A good-looking mortgage can turn ugly if you’re not careful in getting the best interest rates and points that are attached to the loan.

Interest rates and points are often interdependent. With several lenders, your interest rates can be reduced if you pay more in points and vice versa. Yet, while several people are adamant about getting the best interest rates, they often drop the ball when it comes to comparing points. Each point typically equals one percent of the loan amount.

Comparing Points

The first thing that you require to know about comparing points is that there are two main types of mortgage points. These are discount points and origination points. Discount points are seen as prepaid interest because discount points are the amount paid at a specific interest rate. Although most borrowers can select the amount of discount points they wish to pay, most lenders require you to have at least four discount points.

Origination points are often non-negotiable and are normally seen as lender fees. Because discount points directly lower the amount of your loan, they’re tax deductible. Origination points, on the other hand, are not. Discount points can also be paid by the seller of the home, the buyer, or in some cases both the seller and buyer and can pay a portion of these points or split them in half. Origination points are normally paid by the borrower.

When comparing mortgage points, look for mortgage options that have the least amount of origination points. However, before settling in on points, you should definitely consider the short term and long-term benefits. While the short-term benefit of having the least amount of points will save you some upfront cash, the lowered monthly payments might be a better long-term benefit of having more points. It’s important to have an idea of how long you plan to be in the house, and what works best for your situation.

Comparing Interest Rates

Comparing interest rates can be a bit trickier. Simply put, interest rates change daily and could even change many times within the same day. Therefore, the first rule of comparing interest rates between different lenders is to make sure you compare the lenders at the same interest rate.

Additionally, it’s critical that you pay close attention to the lock in periods that the lenders offer. These periods are the amount of time that lenders guarantee the interest rates and points that they quote to you. Basic lock-in periods are of 15, 30, 45, 60, and 90 days.
Another important rule for comparing the mortgage points and interest rates among multiple lenders is to compare these for the same type of loan. If you’re seeking a fixed rate mortgage, you can’t compare the mortgage points and interest rates of a balloon mortgage.

Try to compare mortgage loans, points, and interest rates for various lenders around the same period and within the same market. The best approach, if you’re not in a rush to find a mortgage, is to get several quotes at the two best times to look for a mortgage, which is during the winter or spring. Interest rates and mortgages are defined by the real estate market. Additionally, you might find a dramatic difference in shopping for a mortgage from state to state and in some places neighborhood to neighborhood.

Ask questions about any additional fees. Understand that mortgage points are rarely the only fees associated with a mortgage. Your mortgage is a serious commitment and because it’s most likely your most costly expense. Therefore, it shouldn’t be taken lightly.