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What Are Morgage Discount Points & Fees?
Often times lenders & brokers use the term 'points' rather loosely...with out providing specifics as to
the type of
'points' they are charging or what purpose those 'points' actually serve.
Are they Origination Points or are they Morgage Discount Points? And what's the
difference?
We'll keep it fairly simple. You may know that a 'point' is one percentage point of the loan amount. For
example, on a $200,000 loan one point would be $2,000.
The two types of points are Origination Points and Morgage Discount Points. Origination points
are charged as a fee
for a service performed (originating the loan for the lender or broker). Discount Points, however, are
used to 'buy a rate down' to a lower interest rate that would otherwise not be available. Origination
Fee and Discount Points are both items listed under lender-charges on the HUD-1 Settlement Statement.
The difference in savings over the life of the loan can make paying discount points a benefit to the
borrower. If you intend to stay in your home for an extended period of time, it may be worthwhile to
pay additional points in order to obtain a lower interest rate.
Other Important Morgage Terms
FICO – The numerical credit score that credit bureaus give to you based on the amount of
debt you have and whether you pay your bills on time. FICO is named after Fair Issac Corp, the company
that pioneered credit scoring. Scores average between 300 and 850, the higher the better.
Fannie Mae and Freddie Mac – Fannie Mae refers to the federally chartered company, the Federal National Mortgage Association, which is the nation’s largest supplier of home mortgage funds.Freddie Mac refers to the Federal Home Loan Mortgage Corporation. Both are organizations created by Congress to buy loans from lending institutions.
Federal Housing Administration (FHA) – Government agency, division of the Department of Housing and Urban Development, that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
Federal National Mortgage Association (FNMA, or Fannie Mae) – Corporation created by Congress that buys and sells residential mortgages, providing funds for one in seven mortgages.
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Morgage Discount Points - What are these fees and should you pay them?
We don't sell your information to multiple morgage brokers and call it 'competition'
