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Mortgage Points - What are the types and how do you benefit?

Please explain what points are for.

evolovik26's picture
evolovik26 | Joined: August 15, 2007 11:43 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

A point in mortgage terms is a value that is equal to 1% of a loan amount.
When loan officers talk about points among themselves they are usually talking about how much fees they are charging for a particular loan.
Example ( I am making 2 points on this deal = He is charging 2% of the loan amount to get the deal done )
When loan officer talking with lender points usually mean Yeld spread (points that a lender pays to loan officer for getting the deal done)
When a loan officer talks about points with the client/borrower they are usually talking about the origination fee (points being charged from the client to get the deal done)
Another form of points are discount points and these are paid by the borrower/client to the lender to reduce their interest rate on the loan.

Most people seeking a loan today think that points is what is loan going to cost them which is incorrect.

There are many ways to define points and their meaning. This is why any borrower should look at the bottom line and not the points. Any good salesman can present the points in a variety of ways to you. So try to go with someone you trust and don't concentrate on points as they are not the bottom line.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:35 | Post subject:

larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi carlark,

Welcome to this forum.

Points are also known as discount points. These are some kind of fees that the lenders charge at closing. If the borrower pays these points, he may be offered lower interest rates for the entire loan period.

Eugene has given you some very good information regarding points and I agree with him that the buyer should look the net amount that they need to pay. Points are some kinds of baits to attract the buyers.

There is an article regarding Discount points. You can check it out- http://www.mortgagefit.com/discount-point.html

Feel free to ask if you have any further questions.

Thanks,
Larry

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:35 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

How did you get 0.25%. , why ? 1 point, the rate is reduced by 0.25%

thanks

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest,

This is a general practice among the lenders that if you pay 1 point your interest rate will be reduced by 0.25%.

Thanks

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:35 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Would you please explain
1. what are Front and back point?
2. how does commision loan generate?
Thanks,

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 00:35 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome Kevin Q,

Front end points are also known as loan origination fees. It is 1% of the total amount that you are borrowing for your home loan. They are used to counteract the interest rate that you will pay on your home mortgage loan. Back end points occur if you decide to enlist an assistant of a broker to find you a lender for your home mortgage loan. This will show up as yield-spread-premium.

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parmoney's picture
parmoney | Joined: December 5, 2008 04:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

1. The front point(s) of a loan are something the consumer can see (good faith estimate). The back point(s) are built in to an upsell on an interest rate and are hard to discover because of a rate that changes daily unless locked down. If your shopping for a loan, please request the premium the broker will be making on the back end. Tell them you are shopping this number to other shops and if they want your business it had better be competative.

2. Not sure about your second question however I think your refering to a commissioned agent working on the loan itself. So here we go, the commission (closing costs) on a purchase loan are traditionally brought to the signing table by the home-buyer. On a [url=http://www.mortgagefit.com/refinance.html]refinance[/url] loan, the commission (closing costs) is rolled into the loan amount to ease the burden of cash out of pocket.

Keep in mind, if your working with a bank you will not have access to their back end points. There agents are usually paid out based on units and volume.

When working with a mortgage broker, the commissionable fees are made out to the mortgage company (broker of record) and dispersed accordingly to that particular shop. They may have sales agents that work for a commission of the commission.

Both entites are a pay for performance environment.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks Adonis and parmoney for your respomse.

Who pay for loan commission to mortgage company any loan officer? How many % can you show me the calculation.

Thanks you in advance.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Kevin Q

As far as I know, a loan officer gets a commission from the mortgage company for his/her services. They are paid commission on the value of the loans they place. As the real estate market slows down, they often suffer a decline in earnings and may even be subject to layoffs.

As far as your question is concerned, can you explain what are you trying to mean when you say "Who pay for loan commission to mortgage company"?

Thanks.

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parmoney's picture
parmoney | Joined: December 5, 2008 04:51 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Example:

Mr. Smith is buying a new house but needs financing to own it. He hires mortgage broker (who has several sales agents working for them) to secure favorable terms on the home loan. Mr. Jones (sales agent working for mortgage broker) qualifies him and charges $5000 in fees for their services. Mr. Smith is happy with the program and agrees to move forward. A couple weeks later the financing is in place and it is time to close the transaction. Mr. Smith signs the final paperwork and provides funds for the $5000 and the down payment for the house to escrow.

Mr. Smith moves into his new home and the mortgage broker receives a check for $5000. Now the sales agent (Mr. Jones) who is working for mortgage broker has an agreement in place to receive 40% of said commision. Mortgage broker cuts a check for $2000 to sales agent.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I purchased 1 3/4 points at a bank, then got a better offer from my current lender, I already had the appraisal with the bank. Can I get my money back for the points??

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rugbymad's picture
rugbymad | Joined: October 20, 2011 05:49 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

with discount points, how are the costs of each point calculated? Can you buy points on a [url=http://www.ezloanguide.com/fixed-rate-mortgage.php][color=Black:735620c5... rate mortgage[/color:735620c5d3][/url] only or are they available on all types of loan? Do the prices change if you have a [url=http://www.ezloanguide.com/20-year-mortgage-rates.php][color=Black:73562... year mortgage[/color:735620c5d3][/url] vs a[url=http://www.ezloanguide.com/30-year-fixed-mortgage-rates.php] [color=Black:735620c5d3]30 year fixed mortgage[/color:735620c5d3][/url] or are they basically a set amount?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi rugbymad,

You can pay discount points for all types of loans. Discount point is a type of prepaid interest mortgage which borrowers can purchase. This lowers the amount of interest that they will later on pay. Each discount point generally costs 1% of the total loan amount. Each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Moreover, these discount points are tax deductible as well.

Thanks

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adazpyxa7872's picture
adazpyxa7872 | Joined: August 24, 2011 07:34 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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