Topic No, mortgage points.#Mortgage #points


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Mortgage points

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Mortgage points

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  3. Topic No. 504 Home Mortgage Points

Topic Number: 504 – Home Mortgage Points

The term points is used to describe certain charges paid to obtain a home mortgage. Points are prepaid interest and may be deductible as home mortgage interest, if you itemize deductions on Form 1040, Schedule A (PDF), Itemized Deductions. If you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage. If your acquisition debt exceeds $1 million or your home equity debt exceeds $100,000, you can’t deduct all the interest on your mortgage and you can’t deduct all your points. See Publication 936, Home Mortgage Interest Deduction, to figure your deductible points in that case. Refer to Topic No. 505 and Can I Deduct My Mortgage-Related Expenses? for more information on deducting mortgage interest and points.

You can deduct the points in full in the year you pay them, if you meet all the following requirements:

  1. Your main home secures your loan (your main home is the one you live in most of the time).
  2. Paying points is an established business practice in the area where the loan was made.
  3. The points paid weren’t more than the amount generally charged in that area.
  4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
  5. The points paid weren’t for items that are usually listed separately on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, and property taxes.
  6. The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged. You can’t have borrowed the funds from your lender or mortgage broker in order to pay the points.
  7. You use your loan to buy or build your main home.
  8. The points were computed as a percentage of the principal amount of the mortgage, and
  9. The amount shows clearly as points on your settlement statement.

You can also fully deduct (in the year paid) points paid on a loan to improve your main home if you meet tests one through six above. Points that don’t meet these requirements may be deducted ratably over the life of the loan. You can deduct points paid for refinancing generally only over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated above, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees, or notary fees aren’t interest and can’t be deducted. Points paid by the seller of a home can’t be deducted as interest on the seller’s return, but they’re a selling expense that will reduce the amount of gain realized. The buyer may deduct points paid by the seller, provided the buyer subtracts the amount from the basis or cost of the residence. You can only deduct points you pay on loans secured by your second home over the life of the loan.

You may be subject to a limit on some of your itemized deductions, including points. For more information on the adjusted gross income limitations, please refer to the Form 1040 (PDF) and Topic No. 501.

For more information on points, refer to Publication 936, Home Mortgage Interest Deduction.


How Mortgage Discount Points Work, The Truth About, mortgage points.#Mortgage #points


How Mortgage Discount Points Work

I think it goes without saying that everyone with a mortgage (or thinking about getting one) wants the lowest interest rate possible. After all, who wouldn t want to save money each month for the next 30 years or so of their life?

Remember, this isn t a one-off purchase, it s a decision that will affect your pocketbook month after month for the foreseeable future. So getting the pricing right is imperative.

Let s say you qualify for a mortgage at a rate of 5%, but you re not happy with the rate. Assuming your attempt to negotiate your mortgage rate lower fails, you do have another option.

What are mortgage discount points?

Mortgage points

That brings us to the topic of “mortgage discount points,” which can be paid at closing to reduce your mortgage rate.

Simply put, you have the option to pay a percentage of the loan amount, also known as a mortgage point, to lower your interest rate by a certain amount.

For the record, the ratio of points to rate discount is never perfectly proportional. So I can t tell you that one discount point will equate to a .25% reduction in rate. It always varies.

But I can mention that discount points are considered a form of prepaid interest because the upfront cost lowers the amount of interest you would normally pay during the loan term. The good news is that means they re also tax deductible.

Let s look at an example of discount points in action:

Loan amount: $200,000

Par rate: 5% (what you qualify for at no cost)

Desired interest rate: 4.5%

Total cost: 2 discount points ($4,000)

Say you qualify for an interest rate of 5% with no costs other than a loan origination fee of 1% ($2,000). But you want to secure an even lower mortgage rate, perhaps 4.5%. In order to do so, you re told you ll need to come up with more money at closing to pay mortgage discount points.

The mortgage broker or bank will do the math and determine that you need to pay X amount of discount points to lower your interest rate by a half of a percentage point.

In our example, it would take two discount points to lower your rate by the desired 0.5%. Again, this can vary, but we ll use those numbers to illustrate the potential cost.

The cost of two mortgage discount points on a $200,000 loan amount is $4,000 (2% of $200k = $4,000) to obtain the desired mortgage rate, as seen on the GFE pictured above.

That $4,000 would lower your monthly mortgage payment from $1,073.64 to $1,013.37, a savings of roughly $60 a month. So in exchange for lower mortgage payments each month, you d pay more at closing. That s the tradeoff.

A lower rate would also help you pay down your mortgage balance faster, something that also needs to be considered alongside the monthly savings.

If you decided that a rate of 5% was good enough, you would avoid paying the discount points and reduce closing costs substantially. In our example, you d have $4,000 in your pocket, instead of wrapped up in your mortgage.

Does it make sense to lower my rate using mortgage discount points?

Before actually paying mortgage discount points, you need to be sure it actually makes sense to buy down your interest rate – the answer to this question will vary greatly depending on what mortgage rate you are initially offered, how much it costs to buy down the rate, and how long you plan to stay with the mortgage/in the home.

In our example, you essentially need to recoup the $4,000 spent on discount points in order to make it a good deal. The only way to get that money back is to pay your reduced-rate mortgage each month for a period long enough to where you cover the upfront cost and begin saving money each month. This is known as your breakeven period.

As mentioned above, the lower interest rate means your mortgage is paid down faster because a greater portion of the payment each month is going toward the principal balance as opposed to interest. This can also get you closer to that key breakeven point.

As a rule of thumb, mortgage discounts points make more sense for those who plan to stick with their mortgage for the long-haul, as the interest saved over the years can be exponential. On the other hand, if you plan to move or refinance again in the near future, paying mortgage discount points could be a complete waste of money.

While mortgages generally have terms of 15 or 30 years, most homeowners don t see them through to maturation. Not even close. Instead, they sell or refinance long before that time. So there are definitely a lot of borrowers out there leaving money on the table when paying points.

Also be sure to consider your asset situation before making the decision. If you don t have a lot of money saved up, you won t want to blow what little you do have lowering your mortgage rate by some incidental amount. It ll just make you more house poor.

You always have the option to pay more toward the principal balance each month if you want to save on interest, even if you didn t elect to pay points at closing. Doing so could accomplish the same basic objective while giving you more flexibility.

And as I mentioned earlier, mortgage discount points aren t a perfect science, meaning it could cost three points to lower your interest rate one percent, or just two points to lower it three-quarters of a percentage point.

So be sure you ask your mortgage broker or loan officer about all possible options to ensure you get the very most out of your mortgage discount points.

Tip: Don t focus on a certain interest rate, as the cost may not justify the discount. For example, if you have your eye on a 4% mortgage rate, don t just blindly pay for it so you can tell your friends about your low rate. If the cost isn t justified, look at other options. It may cost half the price to go with a rate of 4.25% instead.


What Are Mortgage Points, The Truth About, mortgage points.#Mortgage #points


What Are Mortgage Points?

Mortgage points

Mortgage Q A: What are mortgage points?

The mortgage process can be pretty stressful and hard to make sense of at times, what with all the crazy terminology and stacks of paperwork.

Further complicating matters is the fact that banks and lenders do things differently. Some charge so-called loan application fees while others ask that you pay points. Then there are those that tack on fees and points.

While shopping for a home loan, you ll likely hear the term mortgage point on more than one occasion.

Be sure to pay special attention to how many points are being charged (if any), as it will greatly affect the true cost of your loan.

How Much Is a Mortgage Point?

Wondering how mortgage points are calculated?

Well, when it comes down to it, a mortgage point is just a fancy way of saying a percentage point of the loan amount.

Essentially, when a mortgage broker or mortgage lender says they re charging you one point, they simply mean 1% of your loan amount, whatever that might be.

How do you calculate points on a mortgage?

Mortgage points

So if your loan amount is $400,000, one mortgage point would be equal to $4,000. If they decide to charge two points, the cost would be $8,000. And so on.

If your loan amount is $100,000, it s simply $1,000 per point. It s a really easy calculation. Simply multiply the number of points (or fraction thereof) times the loan amount.

If it s one point, input .01 multiplied by the loan amount. If it s 1.5 points, input .015 multiplied by the loan amount.

Using $300,000 as the loan amount in the above equation, we d come up with a cost of $3,000 and $4,500, respectively.

Clearly a mortgage point can vary greatly based on the loan amount, so not all mortgage points are created equal folks.

Tip: The larger your loan amount, the more expensive mortgage points become, so points may be more plentiful on smaller mortgages if they re being used for commission.

There Are Two Types of Mortgage Points

There are two types of mortgage points you could be charged when obtaining a mortgage.

A mortgage broker or bank may charge mortgage points simply for originating your loan, known as the loan origination fee. This fee may be in addition to other lender costs, or a lump sum that covers all of their costs and commission.

For example, you might be charged one mortgage point plus a loan application and processing fee, or simply charged two mortgage points and no other lender fees.

Additionally, you also have the choice to pay mortgage discount points, which are a form of prepaid interest paid at closing in exchange for a lower interest rate.

They are used to buy down your interest rate, assuming you want a lower rate than what is being offered. Generally you should only pay these types of points if you plan to hold the loan long enough to recoup the costs via the lower rate. These types of mortgage points are tax deductible, seeing that they are straight-up interest.

*The loan origination fee may also be tax deductible if it s expressed as a percentage of the loan amount and certain other IRS conditions are met.

If you aren t being charged mortgage points directly (no cost refi), it doesn t necessarily mean you re getting a better deal. All it means is that the mortgage broker or lender is charging you on the back-end of the deal. There is no free lunch.

In other words, the lender is simply offering you an interest rate that exceeds the par rate, or market rate you would typically qualify for.

So if your particular loan scenario had a par rate of say 6%, but the mortgage broker or bank could earn two mortgage points on the back if he/she convinced you to take a rate of 6.75%, that would be their yield-spread-premium (YSP), or commission.

Banks can offer mortgages without points as well because of the “service release premium” (their form of YSP), which is a fee they earn when they sell their loans on the secondary market.

Sure, you might not pay any mortgage points out-of-pocket, but you will pay the price by agreeing to a higher mortgage rate than necessary, which equates to a lot more interest paid throughout the life of the loan.

Before YSP was outlawed, this was a common way for a broker to earn a commission without charging the borrower directly. Nowadays, brokers can still be compensated by lenders, but not for offering you a higher mortgage rate than what you qualify for.

How do negative points work on a mortgage?

If points are involved and you are offered a higher rate, the mortgage points act as a lender credit toward your closing costs. These are known as negative points because they actually raise your interest rate.

Now you might be wondering why on earth you would accept a higher rate than what you qualify for?

Well, the trade-off is that you don t have to pay for your closing costs out-of-pocket. The money generated from the higher interest rate will cover those fees. Of course, your monthly mortgage payment will be higher as a result. How much higher depends on the size of your loan amount and the points involved.

This works in the exact opposite way as traditional mortgage points in that you get a higher rate, but instead of paying for it, the lender gives you money to pay for your fees.

Both methods can work for a borrower in a given situation. The positive points are good for those looking to lower their mortgage rate even more, whereas the negative points are good for a homeowner short on cash who doesn t want to spend it all at closing.

Let s look at some examples of mortgage points in action, shall we:

Say you ve got a $100,000 loan amount and you re using a broker. If the broker is being paid two mortgage points from the lender at par to the borrower, it will show up as a $2,000 origination charge (line 801) and a $2,000 credit (line 802) on the HUD-1 settlement statement. It is awash because you don t pay the points, the lender does. However, a higher mortgage rate is built in as a result.

Now let s assume you re just paying two points out of your own pocket to compensate the broker. It would simply show up as a $2,000 origination charge, with no credit or charge for points, since the rate itself doesn t involve any points.

You may also see nothing in the way of points and instead an administration fee or similar vaguely named charge. This could be the lender s commission bundled up into one charge that covers things like underwriting, processing, and so on. It could represent a certain percentage of the loan amount, but have nothing to do with raising or lowering your rate.

Regardless of the number of mortgage points you re ultimately charged, you ll be able to see all the figures by reviewing the HUD-1 (lines 801-803), which details both loan origination fees and discount points and the total cost combined.

*These fees will now show up on the Loan Estimate (LE) and Closing Disclosure (CD) under the Loan Costs section.

Mortgage Points Cost Chart

Mortgage points

Above is a handy little chart I made that displays the cost of mortgage points for different loans amounts, ranging from $100,000 to $1 million.

As you can see, a mortgage point is only equal to $1,000 at the $100,000 loan amount level. So you might be charged several points if you ve got a smaller loan amount (they need to make money somehow).

At $1 million, you re looking at $10,000 for just one mortgage point. And you wonder why loan officers want to originate the largest loans possible

Generally, it s the same amount of work for a much bigger payday if they can get their hands on the super jumbo loans out there.

Be sure to compare the cost of the loan with and without mortgage points included. Also remember that mortgage points can be paid out-of-pocket or priced into the interest rate of the loan.

Also note that not every bank and broker charges mortgage points, so if you take the time to shop around, you may be able to avoid mortgage points entirely while securing the lowest mortgage rate possible.


How Mortgage Discount Points Work, The Truth About, mortgage points.#Mortgage #points


How Mortgage Discount Points Work

I think it goes without saying that everyone with a mortgage (or thinking about getting one) wants the lowest interest rate possible. After all, who wouldn t want to save money each month for the next 30 years or so of their life?

Remember, this isn t a one-off purchase, it s a decision that will affect your pocketbook month after month for the foreseeable future. So getting the pricing right is imperative.

Let s say you qualify for a mortgage at a rate of 5%, but you re not happy with the rate. Assuming your attempt to negotiate your mortgage rate lower fails, you do have another option.

What are mortgage discount points?

Mortgage points

That brings us to the topic of “mortgage discount points,” which can be paid at closing to reduce your mortgage rate.

Simply put, you have the option to pay a percentage of the loan amount, also known as a mortgage point, to lower your interest rate by a certain amount.

For the record, the ratio of points to rate discount is never perfectly proportional. So I can t tell you that one discount point will equate to a .25% reduction in rate. It always varies.

But I can mention that discount points are considered a form of prepaid interest because the upfront cost lowers the amount of interest you would normally pay during the loan term. The good news is that means they re also tax deductible.

Let s look at an example of discount points in action:

Loan amount: $200,000

Par rate: 5% (what you qualify for at no cost)

Desired interest rate: 4.5%

Total cost: 2 discount points ($4,000)

Say you qualify for an interest rate of 5% with no costs other than a loan origination fee of 1% ($2,000). But you want to secure an even lower mortgage rate, perhaps 4.5%. In order to do so, you re told you ll need to come up with more money at closing to pay mortgage discount points.

The mortgage broker or bank will do the math and determine that you need to pay X amount of discount points to lower your interest rate by a half of a percentage point.

In our example, it would take two discount points to lower your rate by the desired 0.5%. Again, this can vary, but we ll use those numbers to illustrate the potential cost.

The cost of two mortgage discount points on a $200,000 loan amount is $4,000 (2% of $200k = $4,000) to obtain the desired mortgage rate, as seen on the GFE pictured above.

That $4,000 would lower your monthly mortgage payment from $1,073.64 to $1,013.37, a savings of roughly $60 a month. So in exchange for lower mortgage payments each month, you d pay more at closing. That s the tradeoff.

A lower rate would also help you pay down your mortgage balance faster, something that also needs to be considered alongside the monthly savings.

If you decided that a rate of 5% was good enough, you would avoid paying the discount points and reduce closing costs substantially. In our example, you d have $4,000 in your pocket, instead of wrapped up in your mortgage.

Does it make sense to lower my rate using mortgage discount points?

Before actually paying mortgage discount points, you need to be sure it actually makes sense to buy down your interest rate – the answer to this question will vary greatly depending on what mortgage rate you are initially offered, how much it costs to buy down the rate, and how long you plan to stay with the mortgage/in the home.

In our example, you essentially need to recoup the $4,000 spent on discount points in order to make it a good deal. The only way to get that money back is to pay your reduced-rate mortgage each month for a period long enough to where you cover the upfront cost and begin saving money each month. This is known as your breakeven period.

As mentioned above, the lower interest rate means your mortgage is paid down faster because a greater portion of the payment each month is going toward the principal balance as opposed to interest. This can also get you closer to that key breakeven point.

As a rule of thumb, mortgage discounts points make more sense for those who plan to stick with their mortgage for the long-haul, as the interest saved over the years can be exponential. On the other hand, if you plan to move or refinance again in the near future, paying mortgage discount points could be a complete waste of money.

While mortgages generally have terms of 15 or 30 years, most homeowners don t see them through to maturation. Not even close. Instead, they sell or refinance long before that time. So there are definitely a lot of borrowers out there leaving money on the table when paying points.

Also be sure to consider your asset situation before making the decision. If you don t have a lot of money saved up, you won t want to blow what little you do have lowering your mortgage rate by some incidental amount. It ll just make you more house poor.

You always have the option to pay more toward the principal balance each month if you want to save on interest, even if you didn t elect to pay points at closing. Doing so could accomplish the same basic objective while giving you more flexibility.

And as I mentioned earlier, mortgage discount points aren t a perfect science, meaning it could cost three points to lower your interest rate one percent, or just two points to lower it three-quarters of a percentage point.

So be sure you ask your mortgage broker or loan officer about all possible options to ensure you get the very most out of your mortgage discount points.

Tip: Don t focus on a certain interest rate, as the cost may not justify the discount. For example, if you have your eye on a 4% mortgage rate, don t just blindly pay for it so you can tell your friends about your low rate. If the cost isn t justified, look at other options. It may cost half the price to go with a rate of 4.25% instead.


How Mortgage Discount Points Work, The Truth About, mortgage points.#Mortgage #points


How Mortgage Discount Points Work

I think it goes without saying that everyone with a mortgage (or thinking about getting one) wants the lowest interest rate possible. After all, who wouldn t want to save money each month for the next 30 years or so of their life?

Remember, this isn t a one-off purchase, it s a decision that will affect your pocketbook month after month for the foreseeable future. So getting the pricing right is imperative.

Let s say you qualify for a mortgage at a rate of 5%, but you re not happy with the rate. Assuming your attempt to negotiate your mortgage rate lower fails, you do have another option.

What are mortgage discount points?

Mortgage points

That brings us to the topic of “mortgage discount points,” which can be paid at closing to reduce your mortgage rate.

Simply put, you have the option to pay a percentage of the loan amount, also known as a mortgage point, to lower your interest rate by a certain amount.

For the record, the ratio of points to rate discount is never perfectly proportional. So I can t tell you that one discount point will equate to a .25% reduction in rate. It always varies.

But I can mention that discount points are considered a form of prepaid interest because the upfront cost lowers the amount of interest you would normally pay during the loan term. The good news is that means they re also tax deductible.

Let s look at an example of discount points in action:

Loan amount: $200,000

Par rate: 5% (what you qualify for at no cost)

Desired interest rate: 4.5%

Total cost: 2 discount points ($4,000)

Say you qualify for an interest rate of 5% with no costs other than a loan origination fee of 1% ($2,000). But you want to secure an even lower mortgage rate, perhaps 4.5%. In order to do so, you re told you ll need to come up with more money at closing to pay mortgage discount points.

The mortgage broker or bank will do the math and determine that you need to pay X amount of discount points to lower your interest rate by a half of a percentage point.

In our example, it would take two discount points to lower your rate by the desired 0.5%. Again, this can vary, but we ll use those numbers to illustrate the potential cost.

The cost of two mortgage discount points on a $200,000 loan amount is $4,000 (2% of $200k = $4,000) to obtain the desired mortgage rate, as seen on the GFE pictured above.

That $4,000 would lower your monthly mortgage payment from $1,073.64 to $1,013.37, a savings of roughly $60 a month. So in exchange for lower mortgage payments each month, you d pay more at closing. That s the tradeoff.

A lower rate would also help you pay down your mortgage balance faster, something that also needs to be considered alongside the monthly savings.

If you decided that a rate of 5% was good enough, you would avoid paying the discount points and reduce closing costs substantially. In our example, you d have $4,000 in your pocket, instead of wrapped up in your mortgage.

Does it make sense to lower my rate using mortgage discount points?

Before actually paying mortgage discount points, you need to be sure it actually makes sense to buy down your interest rate – the answer to this question will vary greatly depending on what mortgage rate you are initially offered, how much it costs to buy down the rate, and how long you plan to stay with the mortgage/in the home.

In our example, you essentially need to recoup the $4,000 spent on discount points in order to make it a good deal. The only way to get that money back is to pay your reduced-rate mortgage each month for a period long enough to where you cover the upfront cost and begin saving money each month. This is known as your breakeven period.

As mentioned above, the lower interest rate means your mortgage is paid down faster because a greater portion of the payment each month is going toward the principal balance as opposed to interest. This can also get you closer to that key breakeven point.

As a rule of thumb, mortgage discounts points make more sense for those who plan to stick with their mortgage for the long-haul, as the interest saved over the years can be exponential. On the other hand, if you plan to move or refinance again in the near future, paying mortgage discount points could be a complete waste of money.

While mortgages generally have terms of 15 or 30 years, most homeowners don t see them through to maturation. Not even close. Instead, they sell or refinance long before that time. So there are definitely a lot of borrowers out there leaving money on the table when paying points.

Also be sure to consider your asset situation before making the decision. If you don t have a lot of money saved up, you won t want to blow what little you do have lowering your mortgage rate by some incidental amount. It ll just make you more house poor.

You always have the option to pay more toward the principal balance each month if you want to save on interest, even if you didn t elect to pay points at closing. Doing so could accomplish the same basic objective while giving you more flexibility.

And as I mentioned earlier, mortgage discount points aren t a perfect science, meaning it could cost three points to lower your interest rate one percent, or just two points to lower it three-quarters of a percentage point.

So be sure you ask your mortgage broker or loan officer about all possible options to ensure you get the very most out of your mortgage discount points.

Tip: Don t focus on a certain interest rate, as the cost may not justify the discount. For example, if you have your eye on a 4% mortgage rate, don t just blindly pay for it so you can tell your friends about your low rate. If the cost isn t justified, look at other options. It may cost half the price to go with a rate of 4.25% instead.


Mortgage Points Calculator – Chase Mortgage #freedmont #mortgage


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Mortgage points calculator


Closing Costs Explained – Escrow – Discount Points – Lender Fees #mortgage #refinance #rates


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Understanding Closing Costs

In this article, LendingTree will explain the cost of a mortgage, including closing costs. We ll help you understand how to differentiate PMI from PITI, understand origination and discount points, and learn about escrow.

Which costs to focus on for the biggest savings

Many home buyers focus on just one cost, when really, there are a wide range of mortgage costs to consider when shopping for a home loan. Typically, buyers focus on getting the best mortgage rates when comparing quotes from lenders. And that s smart. ​

Using a mortgage payment calculator and some basic math, you can see that someone taking out a loan for $180,000, with a 3.5% APR loan on a $200K home is likely to pay just over $110,000 in interest over the lifetime of a 30-year fixed-rate mortgage. Anything that can be shaved off that cost is going to be welcome.

However, just because interest is by far the biggest of the various mortgage costs, that doesn t mean you should ignore the others. Closing costs vary widely between mortgage lenders and loan programs. Typically they run from two to four percent of the home s purchase price. In the example above, that would be $4,000 to $10,000.

Consumers who compare quotes from several lenders may be able to place themselves at the lower end of that range. There s absolutely no reason for a buyer not to contact competing lenders and choose the loan with the lowest overall costs.

What s Tax Deductible?

There s a widespread belief that all closing costs are deductible when filing federal taxes. That s untrue for most, but there are exceptions — and they can be big ones.

The IRS says the following may be deducted by those who itemize their deductions:

  1. Any property taxes paid by the buyer at closing, although there are special rules for cooperatives.
  2. Prepaid mortgage insurance premiums (MIPs).
  3. Mortgage origination fee. That s is usually expressed as a percentage of the home loan amount, for example one point.
  4. Discount points used to buy down a mortgage rate. These are paid to obtain a lower interest rate, not to originate the loan. These have to be pro-rated and deducted during the life of the mortgage. If you paid $3,000 in discount points to reduce the rate of a 30-year home loan, you d be able to deduct 1/30 th of the points, or $100 per year. If you refinance your mortgage. you ll be allowed to deduct any discount points that have not yet been deducted.
  5. Mortgage interest paid during the year.

To deduct any of these costs, you have to itemize your deductions on a Schedule A. If you take the standard deduction, you cannot deduct closing costs or interest expense.

Closing and Mortgage Costs

Most closing costs are related to the mortgage or are associated with home ownership.

  1. Appraisal fee. Paid to the professional who assesses the value of the property.
  2. Attorney or title company fees. This is for escrow services when you sign the documents and complete a property purchase.
  3. Credit report fee. Covers the costs of checking your credit rating.
  4. Discount points. These are paid to get a lower mortgage rate.
  5. Impounds. These are pre-paid property taxes and homeowners insurance. They are not a lender fee but are simply costs related to owning a home, If you borrow more than 80 percent of the purchase price, most lenders require impounds. They prorate these amounts and add them to the monthly mortgage payment. Then the lender pays your insurance premiums and taxes as they come due.
  6. Inspection fees. It s recommended that buyers have a professional inspection to make sure the home is safe and livable.
  7. Loan origination fee. Charged by the lender for processing the mortgage application. It s usually defines as a percentage of the loan amount (in this case it s an origination point and not a discount point ) but it may also be a flat fee.
  8. Pest inspection fee. This determines if the property has termites or any other infestation.
  9. Recording fee. Charged by the city or county for recording the ownership change for the property and the lender s lien against it.
  10. Title insurance fee. There are two policies the buyer s and the lender s. The first one protects the buyer in the event that the title is not clear. The second protects the lender s interest. If you finance a home purchase, the lender will almost certainly require that you purchase a lender s policy.
  11. Title search fees. A search is intended to uncover any encumbrances on the title, such as unpaid mortgages or tax liens.
  12. Underwriting, processing, document preparation, courier fee, and more. These lender fees may be charged by the lender as separate items but are commonly wrapped into the origination. In the industry, these are called junk fees and they are absolutely negotiable.

Good Faith Estimates

Good faith estimates (GFEs) protect buyers by disclosing home loan costs when they apply for a mortgage. Lenders must provide a GFE, which lays out the basic terms and expected costs of the loan, within three working days of receiving a mortgage application. Many are willing to provide one before you actually apply, which makes shopping for your mortgage easier.

Other lenders do not issue GFE s to loan shoppers. Instead, they provide a worksheet or scenario. There is nothing wrong with this, but you should be aware that only an actual GFE provides certain protections.

Lenders must issue a new GFEs any time there is a material change in your application (for example, you applied for a 30-year fixed loan but then switched to a 5/1 ARM ). Your actual closing costs must essentially match the final GFE.

Closing costs are divided into three categories those which cannot vary from what was disclosed at all (most lender fees fall in this one), those that can come in higher but within certain limits (most of these are services from lender-selected providers), and those that can change by any amount (those are mostly costs from providers chosen by the borrower). We explain more about this in our article: the mortgage closing process explained .

Additional Resources

Here are some additional resources to help you better understand the mortgage costs and closing costs.


Mortgage Transaction Costs – Mortgage Points #mortgage #company


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Prime Rate and Mortgage Points Explained

Prime Rate and Mortgage Points Explained

In this article:

When shopping for a home loan, chances are you are very interested in the mortgage rate you ll pay, and for good reason. It can significantly affect the amount of money you ll pay every month for your mortgage payment. Here s a look at two important terms you may have come across in your home loan search: Prime Rate and Mortgage Points.

Prime Rate

Prime rate is the short-term interest rate charged by a lender to customers who are the least likely to default on their loans. The most credit-worthy customers receive the best or lowest rate that the lender would offer any of its customers. Each lending institution sets its own prime rate. The rate is almost always the same among major banks. Adjustments to the rate are made by banks at the same time, but the rate does not adjust on any regular basis.

The prime rate is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate, a short-term rate objective or target rate of the Federal Reserve Board. The term prime rate may also refer to the national prime rate or the WSJ (Wall Street Journal) prime rate. This is an average posted by the newspaper based on polls of the top 10 banks in the United States.

This posted rate has become an index for many types of loans. Lenders use the index as their base rate, and then add a margin (profit) based primarily on the amount of risk associated with a loan. This index – often used for consumer loans, like auto loans, home improvement loans and credit cards – is a popular base rate used for home equity lines of credit.

Check today’s mortgage rates on Zillow

Mortgage Points

There are several costs involved in mortgage loan transactions. One of the closing costs charged by the lender is called mortgage points or just points. One point is the equivalent of 1 percent of the loan amount. For example, if you purchase a home and borrow $100,000, every point would cost $1,000. These points are charged by the lender to obtain the amount borrowed at a particular rate. Points can be negotiated between the buyer and seller and can be paid by either party.

Additionally, there are two kinds of mortgage points: origination fees and discount points.

  1. Origination Fees
    Origination fees are fees charged by a lender for the cost of originating the loan. In other words, this is the lender s income for doing the loan. Origination fees may or may not be tax deductible — you should check with your tax adviser. You can also learn about tax deductions of homeownership here .
  2. Discount Points
    Discount points are also charged by the lender at closing, but these points actually buy down the interest rate that is charged on the mortgage loan. Discount points are considered prepaid interest and are tax deductible. The more discount points paid on the loan, the lower the interest rate. Lenders charges for points can range from 0 to as many as the borrower would like to pay to lower their rate (usually no more than 3 or 4).

Mortgage Points Calculator – Chase Mortgage #house #loan


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Mortgage points calculator


Closing Costs Explained – Escrow – Discount Points – Lender Fees #loan #calculator


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Understanding Closing Costs

In this article, LendingTree will explain the cost of a mortgage, including closing costs. We ll help you understand how to differentiate PMI from PITI, understand origination and discount points, and learn about escrow.

Which costs to focus on for the biggest savings

Many home buyers focus on just one cost, when really, there are a wide range of mortgage costs to consider when shopping for a home loan. Typically, buyers focus on getting the best mortgage rates when comparing quotes from lenders. And that s smart. ​

Using a mortgage payment calculator and some basic math, you can see that someone taking out a loan for $180,000, with a 3.5% APR loan on a $200K home is likely to pay just over $110,000 in interest over the lifetime of a 30-year fixed-rate mortgage. Anything that can be shaved off that cost is going to be welcome.

However, just because interest is by far the biggest of the various mortgage costs, that doesn t mean you should ignore the others. Closing costs vary widely between mortgage lenders and loan programs. Typically they run from two to four percent of the home s purchase price. In the example above, that would be $4,000 to $10,000.

Consumers who compare quotes from several lenders may be able to place themselves at the lower end of that range. There s absolutely no reason for a buyer not to contact competing lenders and choose the loan with the lowest overall costs.

What s Tax Deductible?

There s a widespread belief that all closing costs are deductible when filing federal taxes. That s untrue for most, but there are exceptions — and they can be big ones.

The IRS says the following may be deducted by those who itemize their deductions:

  1. Any property taxes paid by the buyer at closing, although there are special rules for cooperatives.
  2. Prepaid mortgage insurance premiums (MIPs).
  3. Mortgage origination fee. That s is usually expressed as a percentage of the home loan amount, for example one point.
  4. Discount points used to buy down a mortgage rate. These are paid to obtain a lower interest rate, not to originate the loan. These have to be pro-rated and deducted during the life of the mortgage. If you paid $3,000 in discount points to reduce the rate of a 30-year home loan, you d be able to deduct 1/30 th of the points, or $100 per year. If you refinance your mortgage. you ll be allowed to deduct any discount points that have not yet been deducted.
  5. Mortgage interest paid during the year.

To deduct any of these costs, you have to itemize your deductions on a Schedule A. If you take the standard deduction, you cannot deduct closing costs or interest expense.

Closing and Mortgage Costs

Most closing costs are related to the mortgage or are associated with home ownership.

  1. Appraisal fee. Paid to the professional who assesses the value of the property.
  2. Attorney or title company fees. This is for escrow services when you sign the documents and complete a property purchase.
  3. Credit report fee. Covers the costs of checking your credit rating.
  4. Discount points. These are paid to get a lower mortgage rate.
  5. Impounds. These are pre-paid property taxes and homeowners insurance. They are not a lender fee but are simply costs related to owning a home, If you borrow more than 80 percent of the purchase price, most lenders require impounds. They prorate these amounts and add them to the monthly mortgage payment. Then the lender pays your insurance premiums and taxes as they come due.
  6. Inspection fees. It s recommended that buyers have a professional inspection to make sure the home is safe and livable.
  7. Loan origination fee. Charged by the lender for processing the mortgage application. It s usually defines as a percentage of the loan amount (in this case it s an origination point and not a discount point ) but it may also be a flat fee.
  8. Pest inspection fee. This determines if the property has termites or any other infestation.
  9. Recording fee. Charged by the city or county for recording the ownership change for the property and the lender s lien against it.
  10. Title insurance fee. There are two policies the buyer s and the lender s. The first one protects the buyer in the event that the title is not clear. The second protects the lender s interest. If you finance a home purchase, the lender will almost certainly require that you purchase a lender s policy.
  11. Title search fees. A search is intended to uncover any encumbrances on the title, such as unpaid mortgages or tax liens.
  12. Underwriting, processing, document preparation, courier fee, and more. These lender fees may be charged by the lender as separate items but are commonly wrapped into the origination. In the industry, these are called junk fees and they are absolutely negotiable.

Good Faith Estimates

Good faith estimates (GFEs) protect buyers by disclosing home loan costs when they apply for a mortgage. Lenders must provide a GFE, which lays out the basic terms and expected costs of the loan, within three working days of receiving a mortgage application. Many are willing to provide one before you actually apply, which makes shopping for your mortgage easier.

Other lenders do not issue GFE s to loan shoppers. Instead, they provide a worksheet or scenario. There is nothing wrong with this, but you should be aware that only an actual GFE provides certain protections.

Lenders must issue a new GFEs any time there is a material change in your application (for example, you applied for a 30-year fixed loan but then switched to a 5/1 ARM ). Your actual closing costs must essentially match the final GFE.

Closing costs are divided into three categories those which cannot vary from what was disclosed at all (most lender fees fall in this one), those that can come in higher but within certain limits (most of these are services from lender-selected providers), and those that can change by any amount (those are mostly costs from providers chosen by the borrower). We explain more about this in our article: the mortgage closing process explained .

Additional Resources

Here are some additional resources to help you better understand the mortgage costs and closing costs.