Paying Points When Refinancing
REM #A667
By Ilyce R. Glink
Summary: A reader is planning on refinancing their home and the lender has mentioned points. Ilyce explains how points and discount points work.
Q: My husband and I are going to refinance our home and the lender said something
about points.
I don't think that I paid points with the lender that I have now. Are points
good or bad? I don’t understand points at all. Also do you need a lawyer
to refinance?
A: A "point" is one percent of the loan amount, typically paid in
cash to the lender as a fee. So, if your loan is $300,000, one "point"
equals $3,000 paid to the lender.
There are several different kinds of points. There are "discount points,"
where every point you pay lowers your interest rate by a certain amount. Sometimes
you will pay one percent or one point, and the lender will lower your interest
rate from 6 percent to 5.75 percent for the life of your loan.
This can be a good deal if you have the cash and plan to stay in the home and
keep this loan for a long time to come.
The lender may charge you a point or two as a flat fee as well. A legitimate
lender will typically charge you about 1 percent of the loan amount as a fee,
although this is typically made up of all the other fees added together. You
don't usually get charged a point on top of all the other fees.
You do not need an attorney to refinance, but I urge you to really read the
documents the lender has given you. If you have any questions at all, or if
you don't understand what the deal is, then call a real estate attorney for
further explanation. It's better to pay for a little bit of time (if your attorney
charges you at all and he or she may not), then to get suckered into a lousy
loan.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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