What Exactly are Mortgage Points, Rates, and Fees?

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Services for Real Estate Pros with Short Sale TC & Property Management

     Someone asked me about the basics of a loan... in a nutshell there are several costs that are associated when obtaining a mortgage.  Those common 3 widely used words are points, rates, and fees

     I'm going to have to put the types of mortgages aside for this one but leave it simple and just address the 3 kings that are commonly associated with a mortgage.  Just remember to ask questions and these costs will be paid upon closing.

Purchase Points

Points, purchase points, buy down, or discount points are the common front fee that is paid to the lender buy down your interest rate so it it lower. Each point is about 1% of your total loan amount and the more points you buy the lower your interest rate but there is a limit.

So you're asking yourself, spouse, or every person you trust, how do you decide whether you need to buy points? It's simple just figure how long you plan to live in your home and the longer you live in your home the more you can save on interest over the life of the loan.  I usually average that you should live a minimum of 5-7 years at the place to really break and start saving.

 

Interest Rate

A rate is when the lender charges you for using their money to buy a home during the life of the mortgage. As mortgage interest rates constantly change so unless lock in a rate with a lender it's not guaranteed.  Locking in an interest rate can range from 15, 30, 45, or 60 days, however the more days you have it locked the more expensive it will be.

 

Fees

Having a mortgage and fees associated with getting a mortgage go hand in hand in this industry.  Most of the fees cover the cost of processing and underwriting the loan. These fees are to be paid at closing, but some loans have been designed to have lower fees but higher interest rates.  So it's up to you to figure out how you want to pay them and to you have the disposable income to pay these up front fees?  Just make sure there are no hidden fees and that it matches your GFE, Good Faith Estimate, which is given to you in the beginning.

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Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

You did a nice job of clearly explaining these points.

May 21, 2011 11:08 PM #1
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John Kim

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