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 has become the norm as rates have begun to rise at a rapid rate. Charging a client these fees have a dramatic effect on the total closing costs. 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.

In a rising interest rate climate, many clients are spooked by what they consider “high” rates. The truth is that while rates are higher than they were last year, we are still in a historically low interest rate climate. Make sure to ask your loan officer if his quoted rate has discount points associated, as they can have a significant effect on the interest rate and total costs. Feel free to reach out with any questions about discount points, closing costs, or any mortgage related items!