Jake's Lending Tip of the Week

How much are closing costs? This is a daily question we are asked by our referral partners and clients. With borrowers always striving for the lowest possible rate, many lenders quote discount points in their closing costs. A discount point is a fee paid to get a lower interest rate. One discount point is equal to 1% of the loan amount. The amount of discount points purchased is included in the projected closing costs.

Many lenders are quoting discount points upfront without discussing what they are with their borrowers. This can have a dramatic effect on the total closing cost. For example, 1% of a $300,000 loan is $3000. There are certainly instances where purchasing the points may make sense, but oftentimes the recoup times can be quite long.

While discount points can be utilized on purchase transactions, they are even more prevalent on refinances. This is because the points can be rolled into the new loan balance. It's important to remember that we are in an ultra low interest rate climate, and points may not always make sense. Make sure to ask the loan officer if his quoted rate has discount points associated, as it will have a significant effect on your payment and amount of principal financed. Feel free to reach out with any questions about discount points, closing costs, or any mortgage related items!