Question for mortgage experts about "points"

Anonymous · ‎09-05-2007

I know that "discount points" used to buy-down an interest rate are nothing more than "pre-paid interest"...

My question is, where does that money end-up, and is it typically part of someone's commission or bonus, etc. etc??

I'd sure like to know if my loan officer earned more money on my deal than he should have or than what he told me.

Anonymous · ‎09-05-2007

In Buy down points.
the money goes to the lender.

Or rather the lender does not send those funds to the title company/escrow company.

Anonymous · ‎09-06-2007

OK, but more in detail... are these points considered pure "profit" for the lender? In other words, a lender will certainly consider "interest" as profit, granted. But most borrowers don't hold onto a mortgage for the full term (30 years) which means lenders don't usually collect 30 years worth of interest over the life of a loan.

So, are the lenders "grabbing" interest up-front with points, and in-turn, using that to pay commissions to the loan officer, etc? How the heck does this all work and where the heck does all that money go, and ultimately, who gets to put it in their pockets?

Anonymous · ‎09-06-2007

To be more specific, if I paid my lender, let's say, $10,000 in points to originate a loan, would it be fair to say my loan officer made a nice profit or commission off of those points?

I'm being told "we did your deal at a zero profit"... can that be true?

Anonymous · ‎09-06-2007

Sure its true!!!! Did I ever tell you that I have a pig that can fly and my pig can do loans as well!! Want a quote? I can have my pig fly over and give you one!!!

10,000 in the front and I wonder what they made on the back end of the loan.

Loan officers and lenders don't work for free. Here's an exp... Lets say your broker is working with five banks and all are offering a 6.875... Well two things are going to happen.

1. The loan officer is going to go with the whatever bank pays more on the back end of the loan.

or

2.The loan officer is going to just put you in the best deal they can without charging you any points or as little as they can.

Depending on the type of loan it is will set the points. The more risk a loan has... Well the less a lender/broker will make on the back end

If you paid 10K in points... Your subprime or you got screwed. Keep in mind that every loan is different and it may of been a good deal. Hard to say when its not my loan.

CreditHawk wrote:
To be more specific, if I paid my lender, let's say, $10,000 in points to originate a loan, would it be fair to say my loan officer made a nice profit or commission off of those points?

I'm being told "we did your deal at a zero profit"... can that be true?

Anonymous · ‎09-06-2007

.... Point are not always bad. So keep that in mind.

Anonymous · ‎09-06-2007

In the end it's hard science...mathematics to be precise. Who cares about the profit of the loan officer or agency. The salient question is: did the reduction in interest you "bought" for that $10K save you a sum of money exceeding $10K over the life of the loan? If the answer is yes, you did the right thing. If no, you didn't.

Anonymous · ‎09-06-2007

I like your answer more than mine!!
TheNewWorldMan wrote:
In the end it's hard science...mathematics to be precise. Who cares about the profit of the loan officer or agency. The salient question is: did the reduction in interest you "bought" for that $10K save you a sum of money exceeding $10K over the life of the loan? If the answer is yes, you did the right thing. If no, you didn't.

Anonymous · ‎09-06-2007

Also watch your 1099 at the end of the year-

Some lenders "forget" to include this.

Anonymous · ‎09-06-2007

Points are prepaid interest that reduce interest rates. A point equals 1 percent of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7 percent, but come with a charge of 1 point, or $1,500. A lender may charge 1, 2 or more points.

Discount Points: Are prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically pay from zero to 3 or 4 points, depending on how much they want to lower their rates.

How do you decide whether to pay points, and how many?
As interest is generally tax deductible prepaid interest likely follows. Consult with your tax advisor for your situation. If you plan to stay a while, it may be worth reducing the interest rate by paying more points. If your ARM loan is about to move up (recast) consider refinancing to a fixed rate using accrued equity to buy down your "fixed" payments to match what you were already paying monthly on your old mortgage.

By the numbers ...
A lender might offer a 30-year fixed mortgage of $265,000 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $1,589. Paying 1 point at close may bring the interest rate down to 5.5 percent, with a monthly payment of $1,504. The savings difference would be $85 per month or $1,020 per year.

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Message Edited by fused111 on 09-06-2007 06:30 PM