It is often difficult for consumers to compare mortgage proposals
because they are confused by the term “points” as associated with
the rate quoted.
A “point” equals one percent of the loan amount. For example, if
the loan amount is $200,000, one “point” equals $2,000.
“Points” can either be expressed as origination points or origination
fees, or discount points, or a combination of origination and discount
points.
Some lenders and brokers muddy the water by telling a prospective
customer that they are offering a zero point loan (zero discount
points) even though they are including a one percent origination fee.
A true zero point loan has no origination fee and zero discount points.
A one point loan (either one point origination or one point discount)
will provide the borrower a lower interest rate but a slightly higher loan
amount. This scenario will normally be the best option for the
customer who is going to keep the property for more than three years.
A zero point loan (zero discount points and zero origination) will
provide the borrower a slightly higher interest rate but a lower loan
amount. The zero point loan is normally the best option for a
borrower who will keep the property for less than three years.
Always make sure that you understand what you are paying in points
so that you can compare quotes “apples to apples”.
Posted by Terry Brunner. Terry is a Senior Loan Officer with Horizon
Financial. Terry can be reached toll free @ (877) 627-9211 x150 or
email TBrunner@HorizonFinancial.org. Visit Horizon’s website at www.horizonfinancial.org
