Question 4. What are
"points"?
Answer:
Every consumer should know
what "points" are in obtaining a mortgage. A point is equal to one percentage point of
the loan amount. For example, 1 point is equal to 1% of the loan amount. On a
$100,000.00 loan, 1 point would be equal to $1,000.00. However, there is another form of "points",
referred to as "discount points." Don?t confuse origination fees, or
points, with "discount points". They are not the same. Many times a lender offers discount points to
enable you to "buy down" your interest rate. For example, if you are quoted an interest
rate of 6%, but this rate would put your monthly payment amount on the loan too
high to allow approval of your loan. You
could ask the lender if it's possible to "buy down" your rate. Many times it is allowed. The lender could allow you to buy your rate
down for a fee or 1 point. Remember, in
this example, 1 point would be equal to $1,000.00. This could be of help to you in qualifying. At 6%, your payment may be too large to
qualify, but at perhaps 5.75%; you could qualify with just the right payment to
be within acceptable debt ratio guidelines. This is a real help when debt ratios are close
in qualifying. The buy down is usually
for a specified period of time, such as six months or a year. It varies from program to program and lender
to lender.
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