Could someone explan what points are when it comes to loans?

Whoa!

As a former mortgage firm owner, here is the correct answer to your question:

As a cost to you, one point equals one percentage of the loan. (If you pay one point on $100,000, you PAY $1,000 to the lender)

When points are used as discounts, you are basically paying the lender to decrease your interest rate for the period of the loan. If you have a 30 year fixed loan, you will pay the lender "points" to secure a lower interest rate. For example, when you pay "one point", your total overall interest rate may be decreased by .25%. So instead of paying 6.25%, you will only be paying on 6.00%.

What this means: You save .25% interest over the entire course of the loan. On $100,000 loan, this would save you $16.17 per month on your loan. Multiply this monthly savings by 30 years, and you will save $5,821.

Paying points, if you are going to hold onto the mortgage, is generally always a good idea.

They key with paying points is to determine how long it will take to recoup your investment. In our example, if you save $16 per month, it will take you 5.15 years to recoup the $1,000 you paid in "points".

If you want to calculate your own savings, you'll need a mortgage calculator (free on the web) to find the savings in mortgage interest rates. Simply punch in the before and after rate scenerios and compare the difference in payment. Then divide that amount into how much the "points" are going to cost you. The number will be how many months you will need to wait to recoup the investment. Divide by 12 to determine the years.

You can also forward this to your broker and ask him/her to come up with a list of point options and their expected recoup time for each.

As a mortgage broker, I always recommended paying points if I had customers savvy enough to understand them. Overall they are a good deal. Simply make sure your "discounted" rate isn't the regular rate offered somewhere else. In that case, the "buydown" is just going into the pocket of the broker.

Best of Luck.

In general, points are one tenth of a percentage point on the APR of the loan. You pay the lender a set amount per point (say, $1000), and they take a set amount off of the interest rate of your loan. They're a way for you to get your interest rate down, to save you money in the long run. Things I've read about it say it doesn't really happen, though. But you need to research it yourself to see if it would benefit your particular situation.

Points are basically penalties you pay the lender for the risk associated with your loan, or the mortgage broker can charge extra points to make a profit from making your loan happen. One point is equal to one percent of the purchase price.. For instance 200,000 dollar house 2 points equals 4,000 dollars.

Points are primarily associated with mortage brokers and or high risk loans. If your credit isnt perfect expect to pay points.. If you take out a 100% loan... expect to pay points. If your debt to income ratio isnt perfect... expect to pay points --- I'm sure you get the point.

You can avoid paying this penalty by borrowing from a traditional lender such as your local bank by putting 20% of purchase price down and doing a 15 year note--- You will pay NO points and closing cost will be minimal as most closing cost are BS charges...

If you dont have 20% down, do not be afraid to negotiate with your mortgage broker over points as all have some wiggle room. Make it an issue to your broker....He gets a commision for doing the loan wihthout you paying any points but will try to charge you a couple of points to maximize his profit from his dealing with you.

Truth in Lending disclosure adds in all fees and charges associated with the loan besides the interest charges.. such as documentation fee $500 Consulting fee $250... Wash your dog fee $600 and so on.... The actual APR associated with your loan will always be higher than your interest rate...