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What is "origination point"? Is that a good thing?

by warrior903 from Auxier, Kentucky. Nov 15th 2019 Reply

Henry J Daniels, CMPSI, CMHS (HenryJDanielsNationalMortgage)
#12 ranked lender in Texas - 142 contributions

Generally, not always, you are prepaying interest to lower your rate. If that is not the case then that is a lender fee. To know if it is lowering your rate it will say so on the loan estimate.

Nov 15th 2019
Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,092 contributions

Lenders don't work for free. Lenders get paid, and the standard historic number has always been 1% of the loan amount, known as a loan origination fee. Until recently, that was just how it went. In the last 10-years or so, a second option has become popular, that being you DON'T pay 1% origination fee. Cool, save 1%... Yippie... Well, no so fast. Again, lenders don't work for free, so they make their origination fee up by charging you a higher interest rate instead. No you are still paying it, but paying it over time. Depending on how long you stay in the home, paying a higher rate may cost you a heck of a lot more over time than you ever saved up-front. Basically understand that interest rate and closing costs therefore go hand in hand. There is absolutely nothing wrong with paying origination, or discount points. The more you pay up front, the lower your interest rate. Simply ask your Loan Officer to give you at least two options of rate and cost. One with paying the higher costs and getting a lower interest rate, and one without paying those costs up front and taking a higher interest rate. From there, decide if you have the additional money to spend today, what is the interest rate and payment difference, and will you live there long enough to make sense paying more today. Almost without fail, if you have the money, people pay the points as in most cases, the break even payback time on the additional cost up from is pretty good. On the other hand, the cheaper cost up-front today, can also make more sense. Either way, the math and what you have in cash today usually makes the answer in your individual case super obvious.

Nov 18th 2019
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