And How Can They Help You Get The Rate You’re Looking For?
How do you get the interest rate you want? There are many things that can help, like having good credit or using a broker like Amerifund to compare rates from different lenders, but something you may not know, is that if you’re targeting a specific rate, you may be able to get there by paying points on your loan. In this week’s episode, Amerifund President Jamie Cavanaugh explains what mortgage points are and how you might use them in your next home loan.
Hey, it’s Jamie Cavanaugh here at Amerifund with your weekly mortgage update. Have you ever wondered what mortgage points are and what they mean? Let’s talk about it.
Interest rates are published daily on a sliding scale. The lowest rates typically come at a cost and the highest rates typically offer a lender credit which can help to offset some of your closing costs.
To understand the range of rates, and why some come at a cost and others come with a credit, you have to understand the way that banks make money from mortgages. Big surprise: banks don’t work for free, and the way that they make their money is by collecting the interest on your loan. When you make your mortgage payment, the lender will put some will go toward the your principal balance, which is the actual amount you borrowed, and some toward the interest, and that’s the amount of money that they charge for the service of loaning you the funds. The higher your interest rate is, the higher your payment will be, and the more of that payment will go toward your interest.
What does all of this have to do with mortgage points? Well, mortgage points are also called discount points, and sometimes they’re called an origination fee. These are the bank’s way of giving borrowers more flexibility while still ensuring they’ll be compensated for the loan. Some borrowers may want a specific rate or payment and be willing to pay a little more upfront for that rate. Others may need help with their closing costs and accept a small increase in their long-term payment if it means a smooth closing process with as little funds out of pocket as possible.
If you’re thinking about a purchase or refinance, and you’re not sure whether it makes sense to pay points give us a call any time. We’re always happy to help.
Thanks for watching and we’ll see you next week.