Yale Roth M.A., M.Ed

"What's Your Mortgage Rate - No Points?" Is This The Right Mortgage Question To Ask?

I get a lot of mortgage refinance questions, but none more than this one: “What’s Your Mortgage Rate With No Points”? 

This is the WRONG mortgage question to ask your loan officer or mortgage broker.

The correct question is: “What Is the Mortgage Rate and What Are The Lender Fees to Get the Mortgage Rate?”

Here’s why.

The reason this is the correct mortgage question is because consumers are sometimes led to think that they are not paying any points but are in fact paying the “x” amount of dollars in lender fees.

The “x’ amount could be a lot of money – like $800, or $1200, or $1500, depending on the lender and what they think they can get you to pay.

First, I think I should define “points.”

Points come in two forms: the first are called discount points.

Discount points are prepaid interest that the borrower pays upfront at closing to get a lower mortgage rate.

The reason why someone would pay discount points is because they plan on owning the home for a long time and they know that they will pay less in mortgage interest over the long term with the lower mortgage rate even though they are paying more upfront (i.e. prepaid interest or discount points).

Paying discount points can make sense – you just have to do the math and calculate the recoup period and also look at an amortization calculator to see how much you’ll save with the lower mortgage rate.

The other definition of points are called origination points.

Origination points are just considered “fat” on the loan that increases the lenders or mortgage brokers revenue.

There is no benefit to the borrower in paying origination points.

You can be quoted the same mortgage rate by two different mortgage companies: one charging you 1 point origination fee and the other not charging you an origination fee.

1 point is 1% percent of the mortgage amount so if you’re borrowing $200,000, 1 point is $2000.

If you had the choice save $2000 for the same product (i.e. the 4% mortgage rate) which is being offered by both lenders, why pay more?

So what you have to do is get the mortgage rate quote and ask what are the total lender fees including or discount points and/or origination fees.

Sometimes mortgage brokers or loan officers will quote a rate and say that’s a “no point” mortgage.  However, they are charging you $1500 in lender fees that they are calling something else – like a lender administration fee or underwriting fee, etc.

The mortgage question “What’s your mortgage rate with no points?” is the wrong mortgage question.

You want to get a mortgage rate quote and you want to know what the total lender fees are you’re paying to get that mortgage rate.

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