We have seen several stories in newspapers recently discussing how loans generally cost more now days. This is most definitely true for a couple of reasons. First, banks are simply making more money from the higher fees because they can in this market. But also, banks are structuring their interest rate offerings in such a way to make it far more advantageous to pay points than in previous years. Almost all of our borrowers opt to pay points now days, making their loans far more expensive overall. These borrowers do, however, also get far more bang for their buck now days, as the lower rates they get for their points often result in savings that offset the points in as few as two years. These lower rates resulting from the points also yield much lower payments and more affordability as well.
Another reason we encourage borrowers to pay points is that we think it is unlikely that rates will ever get much lower. Hence, we encourage borrowers to get the lowest possible rate now because it is unlikely they will ever refinance into a lower rate after this year. In the past, we discouraged paying points if there was a chance that rates would drop again, rendering the “rate buy-down” a waste of money.
Our point is that it is now prudent to pay points in most cases, and that you should prepare your clients to do so. And, if your clients are short on cash for closing costs, do not be afraid to request a seller credit for closing costs, to help pay for a rate-buy-down, if nothing else. Once again, most lenders allow closing-cost-credits of up to 6% of the purchase price, and our appraisers never balk at such credits.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167