Discuss Mortgage Rate Points!

When you meet with Howard or Allan to talk about mortgage loan rates be ready to ask them questions. Ask about mortgage rate points.

The two main types of points to discuss are origination mortgage points and discount mortgage rate points.

This is how they differ. An origination mortgage point is a fee that some mortgage firms apply to any loan that they help broker. Also discount mortgage points allow you to decrease the overall interest you’ll pay on a loan obtained through a mortgage firm. With discount points you are actually paying to decrease the interest rate of the loan you qualify for.

Regardless of whether the point is an origination point or a discount point the cost of a point is the same: 1% of the mortgage loan amount. Here’s what that amounts to in mathematical terms:

- Mortgage loan amount: $200,000
- Interest rate: 6.26% fixed interest (30-year term)
- Origination point (fee): 1.5 points

In this case above you would pay 6.26% interest on the $200,000 loan ($1,232.72/mth for your monthly mortgage payment). Meanwhile, you would also have to pay a $3,000 fee (origination point cost) to the mortgage company for brokering the loan. Remember the cost of the points is in addition to the down payment, traditional closing costs, mortgage insurance, etc. associated with the loan.

Let’s now look at the cost if the above loan comes with an option to decrease your interest rate through discount points.

Typically, the purchase of each point decreases an interest rate by .25%. Theus if you paid one point you could lower your interest rate to 6.01%. That purchase would cost you $2,000. If you paid two points on the loan interest rate instead of one that would lower your interest rate by .50% to 5.76% and your additional cost would be $4,000. The following is a look at how paying points will affect mortgage payments.

Mortgage Discount Point Comparison

From this you can see that discount points can cost you up front but over a 30-year term or even a 15-year mortgage loan. The cost, by comparison is nominal. The origination point fee which remains the same for a loan regardless of whether you pay discount mortgage rate points is a significant cash outlay on which there’s no return on your investment.

We trust this "Discuss Mortgate Rate Points" information has helped you in deciding on a Mortgage. We look forward to getting you into a House or Condominium in Calgary.

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