What you ought to know (#2)...

What are "points" and should my client pay them?

Points are fees your client pays the lender at the time the loan is closed, expressed as a percent of the loan. For example, a $300,000 loan with 2 points means a cash payment of $6,000. Points are part of the cost of credit to the borrower, and part of the investment return to the lender. Your clients do not need to pay points if they don´t want to. You´ll notice that at Arrowhead Home Loans, most of the rates we quote are with "no points", however, if your client is looking for a lower rate, we have many options, that include lowering the rate, by paying points.

Having these options is one of the many positive features of using a mortgage broker. But, should your client be paying points to get the lower rate? That all depends! Some borrowers have little or no leeway because they are "cash short" or "income short". If they are "cash short" they won´t have the reserves to buy down the rate, and will be unable to pay points. If they are "income short", they need to get the lowest rate available so their debt ratios stay in line. In this case, paying points might make sense. If your client has sufficient income and cash reserves, they will be guided by their time horizon: how long do they plan on owning their home? As your loan officer, I can figure what the monthly payment is, with points and without, then determine the difference in monthly payments. That difference, divided into the cost of the points, will determine how long the borrower will take to make that money back. Since the average buyer of a mountain home has their property for 3 to 5 years, paying points usually doesn´t make sense, but that can be determined by speaking with your loan officer.

Bottom-line, if your client wants to make an informed decision on whether or not to pay points, you should have them talk with Arrowhead Home Loans.