Q: Why Are Many Lenders Charging Points Right Now?

There are 2 main reasons points are being charged by many lenders right now…one is legitimate and the other is somewhat of a shell game.?

The first reason is because the secondary markets are forcing any non-vanilla loans (lower credit scores, investment properties, etc.) to pay points due to their inherent higher risk in this higher rate environment. This is unfortunately the market we're in but it's legitimate and unavoidable.

However, good credit score, 30 and 15 year fixed loans should still be able to avoid paying points. So why are they?

Because rates are higher right now (at least relative to where they've been for most of the last decade) and many lenders feel if they advertise where rates are it will turn borrowers off. So they advertise lower rates with points and close the loan with the borrower paying those points, which is typically thousands of dollars.

The borrower loves the rate but often doesn't realize how much they paid in points. This is a common tactic of Rocket Mortgage and all big banks really.?

But because mortgage rates are expected to come down in the near future, everyone getting a mortgage right now is expected to be refinancing out of it in the relatively near future. And since the borrower doesn't get the money they paid for their points back when they refinance, that money is just gone!

So why would anyone getting a vanilla loan pay points when rates are expected to come down? Because most lenders are less concerned about giving the client sound advice than they are about closing the deal.

This just reinforces why it's so important for divorcing clients to work with a trustworthy lender who sees their purpose as a genuine advisor to the client.

Call me anytime to discuss this topic further, or if you simply have a mortgage question.