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Rainmaker
1,412,784
Ryan Huggins - Thousand Oaks, CA
https://HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

It's pre-paid interest.  Paying points usually lowers various costs of the loan.  I have never found them to be of value for my financial situation and long-term goals.

Apr 20, 2022 05:30 PM
Rainmaker
4,410,398
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

It is all about yield! You can pay me now or pay me later. Think of it as prepaid interest. For most, it is not worth it since they will not be in the house long enough to benefit.

Apr 21, 2022 04:19 AM
Rainer
345,579
J.R. Schloemer, CRS
Kentucky Select Properties - Louisville, KY

Talking with a good loan officer can produce some excellent answers and they can probably give you examples & compare scenarios. S/He can also show if paying the points are worth it, for each individual scenario/situation.

That being said, Ryan Huggins - Thousand Oaks, CA gave you a pretty accurate, quick explanation. 

Apr 20, 2022 09:32 PM
Rainmaker
551,617
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

Every lender offers different programs.  I would talk specifically to the lender and find out what is available for the particular loan program you (or your buyer) is looking for.

Apr 20, 2022 05:00 PM
Ambassador
2,715,974
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate Brokered by Real - St. George, UT
So Utah Residential, Referral & Relocation REALTOR

Contact an experienced, local lender and have a good conversation Mercedes. Wish you the best!

Apr 21, 2022 06:58 AM
Rainmaker
2,668,483
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

This reminds of when they have a retail product for sale and then they have upgrades that cost more. Is the upgrade worth the extra money is the thought. On points, the loan officer has to get paid. On the loan itself, that is what it costs for that loan which is shoppable. Does the loan suit your immediate needs? If so, go for it. Everything in Real Estate is negotiable

Apr 21, 2022 06:50 AM
Ambassador
4,681,798
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

That's a great question for one of our AR lenders to address. Or have a discussion with a lender.

Apr 20, 2022 05:30 PM
Rainmaker
6,850,568
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

You need to have a session with your trusted local mortgage loan officer. 

Apr 20, 2022 05:21 PM
Rainmaker
975,927
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Your question is best answered by a lender, Mercedes. With rates rising, paying points may again be a "thing".

Apr 21, 2022 07:35 AM
Ambassador
3,118,712
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate

This is an excellent question for a lender. They will explain points and when it might make sense to pay points. 

All the best to you!

Apr 21, 2022 08:19 AM
Ambassador
996,270
John Meussner
Mortgages in AZ, CA, CO, DE, FL, GA, MD, MT, NC, NJ, NV, OK, OR, PA, SC, TN, TX, UT, VA - Fair Oaks, CA
#MortgageMadeEasy Fair Oaks, CA 484-680-4852

"Origination points" are a broad term - some states require lenders to include ALL of their up front costs as "origination", meaning fees like 'underwriting, processing, etc' could be rolled into a broad "points" fee.

 

However, "discount points" specifically are usually what's being asked about when thinking "when is it worth it".  Discount points always result in a lower rate - so it's worth it when the loan is held onto long enough for the lower monthly payments resulting from the lower rate offset the up front cost of the discount points : )

Apr 21, 2022 12:17 PM
Rainmaker
572,794
Jason E. Gordon
AmeriFirst Financial Inc, San Diego, CA - San Diego, CA
Sr Loan Officer, CMA, CMPS, CDLP, CDRE, RCSD, CDPE

Imagine you were starting a business and I offered to sell you a piece of machinery for $4000.  If you buy it, you'll make $100 per month.  If you were deciding on buying that piece of machinery, you would compute that it would take you 40 months to break-even on your up-front investment in order to THEN start making $100 per month in profit. 

 

In this case, the piece of machinery is a "lower-than-market interest rate" (which would save the Borrower both on monthly payments and ongoing finance charges).  The "Origination Points" are the cost to buy that machine.

 

In this example, will you keep the "machine" (loan) for more than 40 months? If so, there is a case to be made for paying the extra costs up front.

Apr 21, 2022 10:14 AM
Ambassador
5,605,370
Bob Crane
Woodland Management Service / Woodland Real Estate, EXP - Stevens Point, WI
Forestland Experts! 715-204-9671

A way for the lender to get a chunk of money up front, and pay the commission to the loan broker.

You need to examine your situation and do the math to determine whether it is better to pay a few points up front or pay a higher rate later.  Much will depend on how long you will be needing the loan.

Apr 21, 2022 09:27 PM
Rainer
341,875
Caroline Gerardo
Sun West Mortgage Corporation - Newport Beach, CA
C. G. Barbeau the Loan Lady nmls 324982

Here is an example of discount points: Let's say that today you need a $400000 loan and the rate is 5 with zero points payment is $2089 for 30 years or  4.75 with one point which is $4000 extra cost but payment is $2174 for 30 years.  Eighty five dollars difference. It will take 47 months to break even. If you plan to stay five years you will save a little.                Some lenders charge a one percent origination fee just for the set up. This is a flat fee that can sometimes be lowered by increasing the rate and getting a credit.  Other lenders may not offer lender credits in points or origination or discount - it depends on the company and how volatile rates are on a given day.  Generally it is not work to pay points as it takes time to see savings and you then are betting rates go down and you refinance. The points are not refundable.                                                  Points are prepaid interest and may be deductible as home mortgage interest, if you itemize deductions on Schedule A and if the loan is under $750000 and a few other IRS rules- check with your CPA.  If you qualify under IRS rules to deduct all of the interest on your mortgage, you may be able to deduct all of the points paid.

Apr 21, 2022 04:47 PM
Rainmaker
838,252
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

Points usually don't make sense, but you need to do some calculating to figure that out. Hope you don't live in Florida...

Apr 21, 2022 02:39 PM
Rainmaker
1,318,409
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

I'd ask Jason E. Gordon 

Apr 21, 2022 11:20 AM
Rainmaker
783,870
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
Carolina Life RealEstate & Relocation 919-602-8489

Speak with a preferred lender. It all depends on the individuals situation.

Apr 21, 2022 09:12 AM
Rainmaker
1,021,591
Doug Dawes
Keller Williams Realty Evolution - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Guess I got here late. Seems you have received the answer to your question

Apr 21, 2022 08:21 AM
Rainmaker
675,630
Tony Lewis
Summit Real Estate Group - Valencia, CA
Summit Real Estate Group Valencia & Aliso Viejo

You need to know how long you expect to own the home.  Loan fees are good if they allow you the lowest interest rate and you plan to be in the home long enough to save over the long run.

Apr 22, 2022 10:05 PM