Back
End Points vs. Front End Points
What
exactly is a point?
A
point
is a type of mortgage slang for a percentage point. The technical term
for point is loan origination
fee.
In
laymen terms, a point is a fee you pay to a lender
or broker.
Each point is one percent of the amount of the loan.
Lets
suppose you are getting a mortgage
for $100,000.00 and the lender is charging you two points. $100,000.00
x .02 equals $2000.00. The total dollar amount of points you will pay
is $2000.00
In
the mortgage industry, these points are commonly referred to as front
end points.
If
you are working with a broker, and they are working to find you a lender,
the lender will reward the broker for bringing the loan to them with what
they call back
end points.
The
back end points will affect your interest
rate.
Lets
suppose your broker is kind enough to give you a rate without making any
money from the lender. The lender calls this the par
rate. Now lets suppose the par rate is at 5%.
Keep
reading . . .
Now
lets suppose the broker wants to make a little cash from the lender. The
broker will say to the lender, what will pay me a point? This is where
the rate begins to go up
The
lender will say, if you want to make a point, than the rate will go up
to 5.5%, and if you want to make two points, the rate will go up to 6%.
You will end up with this rate.
So
when the time comes to start going over fees
with your lender or broker, make absolutely sure you ask about the back
end points to be sure you are getting the best rate possible. Also, be
sure to scrutinize the documents they send you before signing, especially
the good faith estimate. (GFE)
Closing
Costs
ARM
Loans
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