Monday, October 24, 2011

Points to Understand about Points

• What is a point? A point is a one-time charge paid at settlement when a loan is made. It equals one percentage point of the borrowed amount (thereby deriving its name). On a $50,000 loan, two points equals $1,000.

• Why are points charged? Because conventional mortgage loan rates are generally higher than VA or FHA rates, lenders often charge "discount points" to make up the difference. By paying points, a buyer trades increased initial costs for a reduced interest rate.

• Who pays points? A buyer usually pays a "loan origination fee," which is a service charge equal to one point. As for discount points, both buyers and sellers can pay to bring the buyer's rate down. This can be an attractive selling tool, and a great tax advantage if you're the buyer. Rules vary slightly for VA and FHA loans, so be sure to ask for specific information.

Do you have more questions about buying, selling, or financing a home? Call or e-mail us; we can put your mind at ease.

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