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KJT LEGAL CORNER – May 2010
Question: I always see these low interest rate mortgages and wonder if there is a “catch.” When I call to inquire, the mortgage broker always seems to mention “points.” What are points on a mortgage? Does it make sense for me to pay “points” on a mortgage?
It depends on how long you intend to stay in the house. A “point” is a term used in the mortgage lending industry that refers to 1 percent of the mortgage loan. For example, on a $150,000 loan, one point would be $1,500.
Also, be careful with other loan fees that may not be very openly disclosed. There are “origination” and “discount” points. Origination points are charged for originating or initiating your mortgage (to cover administrative costs). Discount points may be offered to “buy-down” or lower your interest rate, and therefore, your loan payments. Discount points are optional. Lowering your interest rate by buying down the rate will result in paying less interest over time on the principal.
The longer you plan to stay in your house, the more worthwhile it can be to pay points. If you pay a few points and then sell your home after two years, you’ll have enjoyed lower monthly payments due to the lower interest rate, but the savings probably won’t have made up for the points you paid. For example, if you pay $8,000 in points to save $100 per month, it will take you 80 months to break even.
So when comparing mortgage interest rates, be sure to compare apples to apples and take into account the origination fees and points and not just the lowest interest rate. The K.J.T. does not charge points to buy down its loan rates. The K.J.T. offers fixed-rate loans up to twenty (20) years with a one percent (1%) loan origination fee (minimum fee - $500 and maximum fee - $1,000.)
Philip J. Hundl is State Attorney for the K.J.T. and a shareholder in the law firm of Wadler, Perches, Hundl & Kerlick with offices in Wharton, El Campo and Richmond, Texas. State Attorney’s note: The information in this column is not intended as legal advice but to provide a general understanding of the law. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances.
Submit your questions for this column via email to phundl@wphk-law.com or via U.S. Mail to Wadler, Perches, Hundl & Kerlick, Philip J. Hundl, KJT State Attorney c/o KJT Legal Column, 101 W. Burleson Street, Wharton, Texas 77488 or at www.wphk-law.com.
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