A point, by definition, is 1% of the loan amount. So 1 point on a loan of $300,000 will be $3,000 ($300,000 x 1%) and 1.5 points on the same loan would be $4,500.

Points should be thought of as a fee that is paid to the lender in order to lower the interest rate on the loan. (This can also work in the opposite direction, but I will talk about that below.)

Let’s say that the current market rate, with no points, is 4%. You may have the option to pay 1 point and get a rate of 3.75% on your loan.

If you are getting a $300,000 loan for a 30-year period, then your monthly mortgage payment at 4% would be $1,432.

If you got the same loan with a rate of 3.75% then your monthly mortgage payment would be $1,389.

This means that you save $43 per month for the life of the loan and you save about $15,480* in interest over the life of the loan if you kept the loan for the full 30 years. Now you have to remember that the point cost you an additional $3,000 up front.

The real key to deciding whether you should pay the point is how long you expect to keep the loan. Notice that I said how long you expect to keep the loan, not the house. You may have the house for many years, but refinance the loan one or two times before you sell it. A good mortgage broker will be able to tell you whether paying a point is worth it for you. Generally speaking, you have to keep a loan for at least 6 years in order to have paying points make sense.

Getting a Point.

Generally points are thought of as something that a borrower has to pay in order to get a lower rate. However, it is possible for a borrower to accept a higher interest rate in order to receive a point from the lender.

Let’s take the previous example of the no point market rate of 4%. If the lender is offering to pay you a point if you accept a rate of 4.25% then you may be better off.

Again, if you are getting a $300,000 loan for a 30-year period, then your monthly mortgage payment at 4% would be $1,432.

If you got the same loan with a rate of 4.25% then your monthly mortgage payment would be $1,476.

This means that you pay about $44 per month more for the life of the loan and you pay about $15,840* more in interest over the life of the loan if you kept the loan for the full 30 years. Now you have to remember that the lender gave you an additional $3,000 up front to help pay for some of your transaction fees.

Whether you should pay a point or get a point is a matter of what your needs are.

If you want to keep your payment as low as possible, then you should pay a point or a few points. This will cost you more up front, but will save you each month in your monthly payment and will save you interest over the life of the loan.

However, if you don’t have a lot of savings and would rather have a little extra in your pocket then you may want to have the lender pay you a point. This will reduce your initial expenses in the loan transaction costs, but will cost you a little more each month and will cost you more in interest over the life of the loan.

Key takeaway – make sure you have a mortgage broker and real estate broker who can explain how points will impact your individual situation and never except someone telling you that you HAVE TO pay a point. You have options and should be aware of what is out there.

*This is the nominal amount and does not consider the time value of money.

Mortgage rates have been climbing for the past 3 weeks, but are still in the 3s and low 4s for most loans. Bad news from Europe and the job market in the past 2 days moved rates back down a bit. There is a lot of volatility in the Bond market and the word on the street is that the era of ultra-low rates is coming to an end, but we’ve heard this a year ago and rates plummeted to lows never seen before… Basically nobody know when rates will go up again, but we do know that they are really low right now.

I was in Washington DC 3 weeks ago, lobbying our lawmakers on behalf of borrowers, and it was a wonderful experience. Walking the halls of the Senate and House buildings, meeting with Congressmen and staffers, and seeing how our democracy works is fascinating, to say the least. We had a warm reception which leads me to hope that some of the Dodd-Frank regulations- the ones with damaging, unintended consequences- will get undone soon.

Happy Tuesday-

Rates have been going up the last 7 days, but are still hovering around 3.875% for 30 year fixed and 3.375% for 15 year fixed loans.

FHA announced not only fee hikes, but but a proposal to reduce seller’s concessions from 6% to the lower of 3% or $6000. This means FHA buyers will no longer have their sellers pay all the closing costs, including the very hefty up-front MIP and the escrow account reserves. It could price some first time buyers out of the market – not the best news for a market in recovery. If you’d like to have your voice heard here’s the link to post a comment- you have until March 22nd 2012, so the sooner the better- http://www.regulations.gov/#!submitComment;D=HUD-2010-0063-0908

I will be in Washington DC March 18-21, lobbying our Senators and Congressional reps – we are asking them to adjust some of the Dodd-Frank legislation to allow us more flexibility in reducing (yes!) mortgage broker fees, and allow us to get paid on loan transactions where the borrower chooses to get the lowest rate possible. These are make-sense changes that are very necessary so that we can give borrowers the best loans.

As always, I am here if you have any scenarios you have- Residential, Commercial, FHA, VA, Homepath, or any other mortgage – I will always strive to deliver low rates, low cost and the best service possible.

Rates are holding steady - 3.875% for 30 year fixed loans, and 3.25% for 15 year fixed loan. FHA loans are at 3.75%, and Jumbo loans- those over $625K, are at around 4.5%.

There is some less fortunate news on the FHA loan front- starting April 1st, FHA fees will be going up. The one-time upfront MI is going to 1.75% (from 1.0%), and the monthly MI is going to 1.25% for loans up to $625K (from 1.1%), and to 1.45% for loans from $625K-$729K (from 1.1%). Obviously FHA is shying away from loans over $625K… This will significantly raise the costs of FHA Loans. If you are planning on using an FHA loans it’s best to find a house soon!

There is an alternative – Conventional loans with MI- on a SFR purchase- 5% down with MI is available up to $625K, and on condos 10% down with MI is available up to $625K. Conventional MI is cheaper than FHA’s- usually around 0.6%-0.75%, and there’s no one-time upfront MI to deal with.

You may have also heard that HARP 2 - the improved government refinance of Fannie and Freddie loans, is kicking in this month. Homeowners who are underwater but current on their mortgages can refinance no matter how deep underwater they are- it is now unlimited. Income requirements have also been loosened up.

Lastly, we are doing a lot of commercial loans right now- with rate as low as 3.2% for owner occupied properties to 4.25% for apartment buildings it’s the right time to buy.

Please don’t hesitate to call with all your loan scenarios and questions.

A new pilot program by Fannie Mae will sell foreclosed properties to investors and non-profits as rentals. This seems to be a good idea, because it will get vacant units filled. The problem is that there are plenty of rental units currently available, but there are few affordable homes available for first-time buyers.

Policies like these are short-sighted because they focus on the wrong thing. They are focused on filling vacant units that are foreclosed, but they actually take demand away from other rental units. The real concern should be to make funding available for people to fix up a home so they can buy it. There are programs available for fixers, but they are nearly impossible to get and therefore are underutilized.

Talk to your representatives about making policies that make sense and aren’t short sighted.

San Francisco’s assessor decided that it was worth studying and found the money to audit the files of a handful of properties that had been foreclosed upon. The audit included 382 homes and resulted in some fairly shocking findings.

The audit found that 99% of the loans had one or more irregularities. Additionally, there were clear violations of the law in 84% of the loans. If these are the results from a small scale audit, I can only imagine the number of people who have be impacted by the activities of banks.

I think it is time for policy-makers to get tough with banks and not just pay lip-service to the appease their constituents.