Jon Ingram was recently interviewed for Money.com about mortgage points. Find out what they are and the pros and cons of mortgage points.
What are mortgage points?
Most mortgage companies have a menu of interest rates available to offer clients for every type of loan. In most cases, a company will offer a rate that is considered “market”, meaning they will not charge anything beyond their standard processing fees to lock in and obtain that rate. However, there are also higher and lower rates on the menu as well. A below market rate can be obtained for a fee, while an above market rate will come with a lender credit given to the client.
How much do mortgage points cost?
The amount of the fee or credit will vary based on multiple factors including loan amount, daily bond market movement, and the details of your specific loan scenario. Most mortgage companies are pulling interest rates from multiple investors, including themselves; the rates are offered in real time and subject to change until the lender locks in the terms. As a rule, they are determined as a percentage of the loan amount, but what that percentage actually is at any given moment depends on the appetite of the investor offering the rate.
Are there any limits to how many points you can buy?
Yes, rate sheets for a particular loan scenario will have a high and low interest rate. Every interest rate within that range is generally on the menu.
What are the pros/cons of points?
The average homeowner will have 5-7 mortgages in their lifetime. The biggest con related to points is they may create a breakeven period that conflicts with the time horizon for that particular mortgage.
When should you buy mortgage points?
Whether points are appropriate depends 100% on the needs of the client. A truly professional mortgage advisor will lead an in-depth conversation, asking the proper questions to elicit the goals of the client to offer the best interest rate available for their unique situation.