MORTGAGES

POINTS

You've seen advertisements for lenders that say "No Point Loans". If you read the weekly rate quote in the real estate section of your local newspaper, you may see rates quoted with 2 or 3 points. What are points? Points are pre-paid interest. When a lender quotes a interest rate, they will quote one rate for a loan with no points, or pre-payment, and a lower interest rate if you pay points. Each point is one percent (1%) of the loan amount.

Example:

If you need to borrow $150,000, each point will cost $1,500.

This is the way lenders quote interest rates:

6.5% - 3 points
7.25% - 0 points
So, if you pay the lender 3 points in advance, the interest rate at which you repay your home loan will be reduced from 7.25% to 6.25%. The lender gets 3 points, or $4,500 in advance at settlement.

These points are deductible on your income tax return, just as the interest you pay monthly is deductible.

Return to Mortgage Menu

FIXED OR ARM?

In the past, most home loans were the standard conventional thirty year loan with a fixed interest rate. Those days are gone, probably forever. When your parents or grandparents purchased their first home, they would probably have saved for years to pay a twenty to thirty percent down, then financed the remainder of the purchase price with a conventional twenty to thirty year fixed loan.

Today, lenders offer a variety of loans to home buyers. Your interest rate may be fixed for one year to ten years. In exchange for the shorter period that the loan is "fixed", or remains at the same rate, lenders charge less interest. The shorter the time the loan is fixed, the lower the interest rate.

Example:

Loan fixed for 30 years 7.25%
Loan fixed for 10 years 7.125%
Loan fixed for 7 years 6.875%
Loan fixed for 5 years 6.75%
Loan fixed for 3 years 6.5%

At the end of the time for which the interest rate is fixed, the loan will either be due in full (balloon) or convert to a one year arm. If you have a loan that balloons at the end of the term, you either sell the home or refinance the loan. Most buyers who select loans that balloons in 5, 7, 10 years, know that they will only own that particular home for a short period of time. Buyers who know they may be in the home for many years usually select a 30 year fixed rate loan.

Our real estate agents are familiar with all types of home loans and will help you, with the help of qualified lenders, select the best type of loan for your needs.

Return to Mortgage Menu