How Should Points Affect The Way I Shop For A Mortgage?

By Stacy Williams

The most effective ways to alter mortgage shopping techniques based on the inclusion of points in the structure of a home loan.

In the current economic environment, more and more lenders are including points as part of home loans. Points are upfront fees that a lender collects during the lending process; each point is one percent of the total loan amount. While these types of fees were once easily avoidable, the housing crisis has made lenders more careful and made such expenses harder to avoid.

The Affect of Points of Mortgage Terms

Prior to the unraveling of the housing market, lender’s would often offer a borrower and option that included points and one did not. The option with the points would typically carry a lower interest rate, since the required profit to the lender was collected as a point based fee. Under these circumstances, a borrower could easily estimate when the breakeven mark would be reached. If he or she planned to be in the home for that long, paying the points was reasonable; if not, avoiding these fees was the better choice.

Changing Mortgage Shopping Practices to Address Points

Borrowers used to have far greater leeway to push a lender to give the lower interest rate and waive the points. Under the increased scrutiny now present, this is less common. Furthermore, points must often been paid out of closing costs and not simply rolled into the loan. The effect is that either more upfront capital is required, or a greater loan amount to purchase the same house. When you are shopping for a mortgage, it is advisable to consult your lender or mortgage broker to determine options. This will quickly reveal if you have sufficient capital and credit to buy in the price range in which you are interested. Once this is determined, it will be possible to accept these terms or shop for other mortgage options.

How Should Points Affect The Way I Shop For A Mortgage?

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