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| krobinson57-0 |
 Posted: Mon Feb 26, 2007 11:09 am Post subject: Refinance Points? |
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Investing Associate
Joined: 13 Dec 2006
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Location: Utah
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| Can anyone explain to me how the points you get in a refinance are used? I heard it was with taxes but couldn't find out any more than that. |
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| Dave Rathbun |
| Posted: Mon Feb 26, 2007 11:12 am Post subject: |
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CFO
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| Points are essentially a "bribe" for a lower interest rate. The bank takes the points up front instead of interest income over time. You are allowed to deduct points from your income tax (assuming you file itemized) as they are essentially prepaid interest, and interest on your primary residence is a deduction. |
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| Do5 |
| Posted: Fri May 04, 2007 10:32 am Post subject: |
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Investing Sr. Associate
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Points ( percentages )are fees you pay in association to the loan amount.
If you are borrowing $300,000 and paying 1 point in origination then you will pay 1% of the loan amt. or in this case $3000
you can pay points on the front of the loan ( origination fee )
or the back end ( yield spread premium or Service Release Premium ) which increase your rate. This is paid by the lender as a rebate to the broker or lender your working with.
People that want to keep closing costs down, would go with points on the back, so if you were getting 6% PAR rate, and you didnt want to pay any origination fee then you could be bumpped to a 6.5 - 6.875% rate.
Discount Points are to buy the rate lower than the PAR rate... say 6.0 is PAR rate, and you want a 5.5% you can buy the rate down, and you would pay 1% discount point or $3000 to get that 5.5%
I believe that you would need to stay in the home for 11+ years for this to work in your advantage.
Hope this helps. |
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| efflandt |
| Posted: Fri May 04, 2007 2:51 pm Post subject: |
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Investing Manager
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From what I have been able to tell from advertised rates, the only person who benefits from discount points is the lender. Over the whole term of the loan, the points plus interest equals the interest you would pay without points. And if you bail out of the loan or sell your home before the end of the term, you end up paying more including points than with no points. Not only that, but if you pay the points up front, you lose the investment value that money could have had if paid later.
So points appear to be a way of sneaking in a prepayment penalty without calling it that.
My original loan had no points, and the 2004 refi of my existing balance at lower interest and short term with same lender had a grand total closing cost of $170.00 with no points. Neither had any prepayment penalty. |
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