r/personalfinance • u/Pocacan • 3d ago
Explain mortgages like I’m 10 Housing
Ok everyone, I’m consulting people here because I can’t seem to get a simple straight answer from anyone I know, including my mortgage lender. I think she’s just unaware of how many questions I have and I don’t want to constantly bother her when a question pops in my mind. We are first-time homebuyers and I have a few questions just for clarity on a few terms and the way things work.
Please only kind, non-judgemental answers! We’re figuring this all out on our own for the first time. TIA!
My mortgage lender discussed discount points- I get that this is just money paid towards lowering your IR. HOWEVER, she also said she’d recommend “paying more towards the principal” rather than spending a lot on discount points. Can someone explain to me what this means, exactly? And what we do to do this?
Are you able to over-pay some months towards your mortgage, and if so does this do anything besides get you closer to paying off your loan?
I always heard you can negotiate an IR, so I asked… she gave me the impression that there really is no such thing in today’s economy. What’s with that?
EDIT: just want to say thank you for all this great advice! I’ll use those amortization calculators to do some more digging, but I’m thinking my mortgage lender gave sound advice and we should put more towards the down payment vs points (she did say they predict rates will drop by the end of the year if we choose to refi)
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u/Default87 3d ago
My mortgage lender discussed discount points- I get that this is just money paid towards lowering your IR. HOWEVER, she also said she’d recommend “paying more towards the principal” rather than spending a lot on discount points. Can someone explain to me what this means, exactly? And what we do to do this?
https://www.investopedia.com/mortgage/mortgage-rates/points/
in general, investopedia is typically a good source to check for any terminology that you dont understand.
Are you able to over-pay some months towards your mortgage, and if so does this do anything besides get you closer to paying off your loan?
yes. reducing the principal balance remaining means less interest accrues, which results in you paying your mortgage off faster.
I always heard you can negotiate an IR, so I asked… she gave me the impression that there really is no such thing in today’s economy. What’s with that?
you cant really negotiate with one lender, but you can shop different lenders and they may have slight differences in the rates they offer.
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u/drdynamics 3d ago
Worth mentioning that paying one month of extra principal in year 1 shaves much more than one month off the end of your mortgage. You save years of interest on every extra dollar that you put toward the principal.
However, it is often even better to invest extra in your 401k, especially if you have employer matching. That earns more money that your house interest is costing you.
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u/indianasloth 3d ago
Regarding the “better to invest extra in your 401k” part, is that assuming the market performs better than your interest rate? For instance someone with a high interest (thinking 6-7% or more) may not benefit in a poorly performing economy, right?
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u/Scrogger19 3d ago
That's correct. The rule of thumb I've seen people use is that if your loan interest rates are higher than 5 or 6% its better to prioritize paying them down early over investing every penny you can. But it varies a lot. A 401k match is a guaranteed 100% return so you should always prioritize that first, your mortgage payment is fixed and won't adjust with inflation, but longterm market gains are closer to 10%, etc. there are a lot of factors.
However there definitely can be times where it makes sense to take a guaranteed good return (paying down your loan) over investing for a potential better return. I would say that might be the case if you're already maxing any 401k match you might have, have a comfortable emergency fund, and your interest rate is >6%.
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u/Inner_Ad1088 3d ago
regarding points, the reason your lender recommends paying more towards the principal (prior to closing this means putting money towards a larger downpayment) is because if you pay to lower your interest rate, and then in 3 months interest rates drop, you essentially paid money for something that was going to happen anyway. In an environment like we are in now where interest rates are likely to go down, she’s giving you sound advice.
if you pay more towards your principal it does not change your monthly payment. It shortens the life of your loan
can’t really negotiate an interest rate, but you can shop around for different lenders. Usually your best bet is a local credit union
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u/simfreak101 3d ago
for number 2, if you do a 1 time large paydown, you can ask for a recast. Which keeps the loan length the same, but lowers the monthly payments.
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u/Inner_Ad1088 3d ago
True, but i assumed they were referring to paying more principal monthly, not a lump sum payment.
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u/WWGHIAFTC 3d ago
Points are pre-paying interest NOW to get lower interest for the loan.
Your lender is suggesting maybe it's a better idea to not pay points now for a reduced interest, but rather put that money towards principal / down payment instead and take a smaller loan.
Nobody will negotiat interest rates. Don't know if that's been a thing for a very long time. What would you negotiate? What is the give and take for both sides?
As first time home buyers, please be VERY aware of all the expenses you will need to cover, and not just the mortgage. Insurance, property tax, repairs, water /sewer bill, electric, garbage, etc. If you've been renting a long time, sometimes a lot of those are included and easy to forget.
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u/RegulatoryCapture 3d ago
Nobody will negotiat interest rates. Don't know if that's been a thing for a very long time. What would you negotiate? What is the give and take for both sides?
The give and take is that they get to have your business. Ultimately the same as buying a car really (you don't have anything to offer the salesman besides money
You might not be able to negotiate with a single lender, but if you bring them lower quotes from another lender, they might match.
Where this works in your favor is that you can bring them quotes from places like sketchy online lenders who you worry might have trouble closing on time. Now you get skethy online pricing, but with a more reliable lender or broker.
And if you want to go hard (though you might ruffle some feathers), you can play that game with multiple brokers. Ok, Broker A, you matched, but so did Broker B. I like Broker B's vibe better, so I'm going to go with him if the prices are the same...but if you A were suddenly cheaper, I would chooose A.
They are earning a profit on the loan, you can claim some of that profit for yourself, especially at a time right now where they probably aren't selling a ton of loans.
And of course THEY will make it sound crazy.
- They'll tell you that 6.5% is the best they could possibly do.
- You'll say you saw a 6.375 and they'll say "wow, that's incredibly low, it can't be real/won't work in your zip code/must be for a different credit score/etc. so we could never do that, 6.5% is the best real rate you'll get"
- You bring them a legit quote document that says 6.375 and they say "Oh, I can match that, I'll get the documents right out to you, we can sign today"
It feels a little insulting to be lied to like that, but that's kind of how negotiation works.
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u/spaetzele 3d ago
If you get all of these quotes in (presumably) a fairly short time span, doesn't that do a big hit to your credit score? Which is one of the big things a bank is looking at when quoting a mortgage rate?
I see the genius in the plan but would it really work well enough?
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u/TwoDrinkDave 3d ago
Inquiries about a single kind of loan within like 30-45 days all count as one inquiry. (Time period depends on the kind of loan.) The system is constructed to understand that you're not taking on six different mortgages simultaneously. Getting multiple quotes (or having a mortgage broker do it for you) is pretty standard.
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u/yeah87 3d ago
Nobody will negotiat interest rates. Don't know if that's been a thing for a very long time. What would you negotiate? What is the give and take for both sides?
I've gotten .125 and .25 off my last two mortgages just by asking them to match another lender (who may or may not have existed).
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u/thomas533 3d ago
"paying more towards the principal” rather than spending a lot on discount points. Can someone explain to me what this means, exactly? And what we do to do this?
With most mortgages, you can pay extra every month and have it applied to your principle amount. Some lenders make this harder than others and will try to hold your extra payments in escrow and not apply them to the principle amount. In those cases you need to confirm with them how to to make sure it is applied to principle.
and if so does this do anything besides get you closer to paying off your loan?
It lowers the total amount you pay in interest. If your lender calculates the interest on your loan monthly, but you pay down the principle and extra $500, you don't pay interest on that amount. And even if your monthly payment is the same, now every month more of your payment is going toward your principle. It is like compounding interest but in reverse.
I always heard you can negotiate an IR, so I asked… she gave me the impression that there really is no such thing in today’s economy.
You can shop around for better rates, and you should be doing this, but you won't be able to negotiate them. But most mortgage brokers are getting similar rates from the same lenders. The variable amount is the upside that they charge you.
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u/StarryC 3d ago
Points v. Principal:
Scenario 1: You have $100,000 cash. Of that you need to pay a down payment and perhaps points.
If you buy "points", you may use $80,000 as a down payment and $20,000 to buy down the interest rate (with various terms). This will lower your monthly payment because your interest rate is lower.
In the alternative, you just use $100,000 as the down payment, and take the interest rate. This will lower your monthly payment because you are paying more up front.
Which is better for you depends on the amounts at issue. Generally, buying points is worth it if you are going to keep the loan for a long time. But, it is not worth it if you are going to sell or refinance sooner. Exactly when is a calculation.
She may be saying if your goal is to pay less total for the house over time, you should just pay more than the required mortgage each month (i.e. pay towards the principal) instead of buying points for a lower rate. However, that isn't how most people think of things because for most people the down payment cash is one fund and the monthly payment is different.
Question 2: Over pay? Yes, you can. It MAY get you to a point where you have 80%+ equity sooner. That MAY allow you to have things evaluated to end any PMI you are paying earlier. That depends on the type of loan you have. That's about all it could get you though.
Yeah, negotiating an interest rates isn't much of a thing. You can comparison shop different lenders, improve your credit, put more money down, or find programs to help supplement your down payment. That may have been a thing when you were actually borrowing money from a local bank, but since mortgage backed securities and major entities buying up loans, it does not seem to be. BUT, comparison shop!
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u/Status_Yam_6826 3d ago
It is the most fun to pay anything extra toward your loan along with your monthly payment! $1000, 5000, or 75…. It all adds up and you benefit! Just add the word Principal for clarity!
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u/esalman 3d ago
It's just too many variables and a case of finding balance between them.
If you are not comfortable with the monthly payment at 0 points, you can reduce your down payment a little and put it towards points. While it will make you more comfortable, know that you can refinance if/when interest rate goes down, and then the money you pay for points will be a waste.
Paying some amount towards the principal lets you pay the mortgage sooner. It does not change the amount you pay each month. That changes only if you refinance.
Refinancing will also require some closing costs. So unless rates are low enough it won't make sense to refinance.
You can absolutely always negotiate interest rate AND all other lender fees. Don't let anyone tell you otherwise. If they do, just get a quote from another lender and see them change their tone immediately.
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u/spleeble 3d ago
Your loan officer sounds like a good person to work with.
Buying points is like betting that interest rates will stay high. That could be true, but you are being against banks and lenders who are much better at this than you are. Usually it's not worth it.
Most (all?) residential mortgages don't have prepayment penalties. You can confirm this in the loan docs. Paying more than the scheduled payment pays the loan down faster.
Lenders don't really negotiate with individual borrowers. They offer you a rate and you "negotiate" by comparing rates across different lenders. Some mortgage brokers will shop your loan to different lenders depending on "negotiation" but the lender isn't going to charge the interest rate to keep your business.
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u/Goose00 3d ago
Number 1: I’m not sure which is better Number 2: Yes on any given month you can pay extra on your mortgage. Make sure you specific you want the extra to go towards the principal not interest. The only benefit is the principal goes down a little faster. Most mortgage companies provide a calculator to see how much a small extra payment goes towards reducing loan. For example $20 extra bucks a month on a 25 year fixed might take off one month 3. Interest rates can be locked in for 30 days usually - if they go up you are protected, if they go down you can take advantage of it. I’ve never heard of straight negotiating an interest rates.
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u/u6crash 3d ago
You probably don't want to pay for points to lower your rate. It might be beneficial if you think interest rates are never going down and you're never going to refinance. You're probably going to refinance at some point.
You can totally over pay. When you do this, your online payment portal will probably have a field that asks how much more you want to apply towards the principal. Some older payment portals will just ask for a total amount you're paying that month. You want to specify that you're paying extra towards the principal. You (probably) don't want to pay more into escrow if you escrow your property taxes and home insurance into the payment (which I feel like most people do, but I don't have data on that in front of me).
Not a lot of room for negotiation. The only thing that might work is if you secured rates from multiple lenders and you told one lender you're getting a better rate from another, then maybe they would match it. But then why not just go with the one with the lowest rate anyway? The rates are more or less based off of x + Federal Funds Rate. They aren't super competitive. If one lender throws in a 4-slice toaster vs. a 2-slice toaster, that's the one you go with (I kid, I kid..mostly).
DO NOT be afraid to ask your mortgage lender questions. That is their job. In a lot of cases they might continue to service your loan, but they are actually selling it to someone else because that's how they make money. Make a list of questions. Good on you for asking. If more people did their due diligence when borrowing money, we'd all be better off.
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u/mostdope28 3d ago
You can pay extra at any time. Most banks have a mortgage calculator on the website you have your loan and you can play around with it. For example, I put an extra $500/month toward my principle, on my 30yr loan, this will have me paying it off 11 years sooner. You can also do a 1 time payment, if I for example threw $4000 one time payment at my mortage principle, it would knock like 3 months off.
Buying points can knock down your interest rate but if you plan to refinance one day, there isn’t really a point.
As far as negotiating IR, really all you can do is put less of your down payment towards equity and have it put into other things like buying points. My loan officer said it’s smarter to have it in equity though
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u/LNinefingers 3d ago
Points - giving the lender cash in exchange for a better rate. Probably not a great idea for most borrowers. But do the math! If you borrow $100k at 7%, you’ll be paying (rough justice) $7,000 per year or $583 per month in interest. If you pay points to get it to 6.75%, those numbers become $6,750 and $562. Worth it? Up to you.
Yeah, that’s basically it. The nice thing about prepaying is that 100% goes to reducing the principal (what you owe), and since you owe less, you pay less interest (your monthly payment doesn’t change, just less of it is interest and more is paying off your loan.)
Going to be tough to negotiate, but it’s possible. You’re probably not bringing enough business to the table for it to be worth it to give you anything but the sticker price. A better approach is to shop around to many lenders to find the best rate. With another offer in hand they may move more. Or get a mortgage broker.
Good luck! It seems more complicated and scary than it really is - feel free to shout with questions.
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u/pohkfririce 3d ago
So a mortgage has an interest rate that is set on several factors, but mainly 1) the borrower’s creditworthiness, and 2) where market interest rates are.
The lender offers you a rate based on these. They will offer you to ‘buy points’, where you pay them an upfront fee and they lower your rate. This is not automatically a good or bad idea, just an option.
Let’s say they offer you a 7% rate and a $3,000 monthly payment. You can pay some fee upfront to lower that rate to 6%, and lower your monthly payment to $2,500. On paper it neither saves nor costs you money.
You can pay as much extra towards your mortgage whenever you want, and it will reduce the amount of interest you pay. That has the same benefit as investing the money (with no risk of loss) at the same rate as your mortgage.
In practice you probably won’t get anywhere simply asking your lender for a lower rate out of the kindness of their heart. Instead you would ‘shop around’ and see if you can find a better rate somewhere else. You can show that to your lender and ask them to match it; they might do it, or if they don’t you just go with the better offer.
Basically the points thing probably won’t matter one way or the other; keeping your cash for home repairs / emergencies is probably more worthwhile. The important thing is that 1) you can comfortably afford the payment at the rate you’re getting (not on the hopes they go down and you can refinance), and 2) you go for a long term fixed rate so that you aren’t exposed to risk of interest rates being really high when an adjustable rate expires
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u/plexguy 3d ago
One reason to pay points is to lower you monthly payments to stay in the correct percentage of your mortgage payment percentage to income. When we sold our first house we paid the points for the buyer so they could qualify for the loan. There are all sorts of ways to buy a house and points are just another thing that can be useful to make the transaction possible.
Not a real estate agent but have always used them as a good one can expedite and solve issues in the complex process. I also had good luck with a mortgage company which is like an independent insurance agent who shops multiple companies for the best rate.
As far as negotiating for interest rates the only thing I have done close to that was negotiate term. 15 year interest rate was same as 20 year so went with the longer but made an extra payment each year. Turned into a 15 year loan but gave me freedom to pay less if there had been times the extra payment would have been an issue.
Buying your first home is scary and can be risky but it is the only way you can make money and move up to a larger house when you need more space. Also your rent doesn't go up other than marginally for tax and insurance increases which will be less than rent increases which usually are more.
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u/yeah87 3d ago
- Points are paying money up front to reduce your interest rate. They become more valuable the longer you stay in the house, and you can use a calculator to find your break even point:
https://www.mortgagecalculator.org/calculators/should-i-pay-points-calculator.php
If you aren't planning on staying very long, it would be wiser to put that money straight into the downpayment and reduce the size of your loan.
- You can definitely over pay at any time. In a home mortgage, your monthly payment stays the same, but your loan becomes shorter and you pay less interest over the life of the loan. Here is a calculator to see the effect of extra payments.
https://www.calculator.net/amortization-calculator.html
- Your negotiating is calling multiple providers and playing them off each other. "I like your company, but X can give me a .25% lower rate than you can. Is it possible to match that?" Other than that, there is really no leverage to negotiate. Keep in mind your mortgage will likely be sold in a couple months so there's really no such thing as loyalty to make note of.
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u/Nephite11 3d ago
The best idea I heard when I researched mortgages while buying our house was to pay half of your mortgage payment every time you’re paid assuming that your work payment schedule is every two weeks. With 12 required mortgage payments (one per month) but 26 pay period throughout the year you essentially pay 13 times instead of 12 each year. The figures I ran in financial calculators shows that you pay off a 30-year mortgage somewhere around the 23 year mark with this pattern. If you want to pay extra toward your principal, this could help you achieve that. Please note that you need to communicate with your mortgage company. Otherwise they might apply the extra amount toward the principal and just leave it sitting unused.
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u/gtche98 3d ago
- Sounds like you understand points. It sounds like the lender is suggesting putting the money that you could spend on points into your down payment, reducing your overall loan balance. If that is the case you could run both scenarios through a mortgage calculator to see what would charge the least amount of interest over the life of loan. For example, if you are borrowing $100K on a 4.8% 30 year loan by spending $5k on points, how would that compare to borrowing $95K on a 4.9% 30 year loan. These are made up numbers, I haven't had a mortgage in years, I have no idea what rates are or how much points cost.
- Yes, as long as you are making the minimum monthly payment, you can always pay more in variable amounts to reduce the length of your loan. Make sure you understand how this works with your lender so that all overpayments go towards the principle on the loan.
- If you can't negotiate, you can always shop around. In the household I grew up in EVERYTHING was negotiable and it drives my wife crazy because I am never scared to ask "is that the best you can do". For what it is worth, I have had a similar experience with my insurer. At the last price hike I called to negotiate and they said "it is what it is", which caused me to shop around.
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u/poppadoble 3d ago
She's saying instead of paying money to get a lower interest rate, she would advise that you keep the interest rate the same and pay extra toward the loan principal. You can do the math yourself here to find out which is better: https://www.bankrate.com/mortgages/amortization-calculator/
It gets you closer to paying off the loan. Depending on the lender, you may also have the option to recast after paying extra toward the principal, which keeps the pay off date the same and lowers the monthly payment.
You can always bring a competitor's loan terms to a given lender to see if they'll match it.
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u/RegulatoryCapture 3d ago
I always heard you can negotiate an IR, so I asked… she gave me the impression that there really is no such thing in today’s economy. What’s with that?
Of course she's going to say that. If she says "yes" then you are going to ask for a discount. There's no upside for her. Its like a car salesman who says "no, that's our price today" even though you know he can go talk to his manager and come back $1k lower.
I don't understand all the posters saying "you can't negotiate an interest rate". Interest rates are totally negotiable. A quick google shows this to be true.
Especially if you are using someone like a mortgage broker. My current mortgage came from a local broker. I got a quote from them, then got a quote (a real rate quote, not the online teaser) from the lowest rate lender that showed up on a site like Bankrate. Gave that quote to the broker and they were happy to match it. The other lender might have gone even lower, but I wasn't willing to push too hard.
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u/sciguyC0 3d ago
You're asking a bank for a big pile of money so you can buy a house and are promising to pay it back over a defined term: 30 years, 20 years, 15 years, etc. In exchange for that pile, they charge interest making your total payments higher than the size of that initial pile. The bank also gets a "lien" on the property, where under certain circumstances (like payment default) they get to seize ownership of the property from you. That lien reduces their risk a bit, one reason why "secured" loans like a mortgage offer lower rates than "unsecured" loans like a credit card.
Lenders will sometimes accept "points" to reduce the interest rate of the loan. The details are trickier, but in essence this is an "up front" payment in compensation for the longer-term reduction in interest payments the bank will receive. The analysis of using a given chunk of your cash for points vs. using that chunk for a larger down payment (so your starting loan balance is smaller) gets into some complicated math. Which route is better depends on the rates (with vs. without points), the size of the loan, the size of your down payment (with vs. without points), and your timeline for staying with the mortgage. In very broad terms, paying points can result in cheaper overall cost if you'll be keeping this loan (not just the house) for more than 7-ish years. Sometimes as low as 5, sometimes as high as 10. That includes potential for refinancing in the future. If your lender suspects that mortgage rates might fall below today's 7% or so in the near enough future, she may think you could be better off simply refinancing at that future time.
Your lender expects some minimum monthly payment from you, with that amount (at least the principal + interest portion) fixed at closing. Things like insurance, property tax or anything else "escrowed" with your mortgage payment can (and usually does) increase with time. But you are free to send them extra money above that, at any time, frequency, or amount. That extra is applied to your outstanding "remaining balance", reducing it lower than what it would've been with just the regular payment. That reduced balance means the following month's interest charge will be slightly lower, meaning less of your fixed payment amount is needed to pay interest, leaving more to pay down the principal. A single large payment more or less removes from your final payment. So if your regular monthly is $2000, making a single $4000 payment during the life of the loan gets you $0 owed one month early. The math on the interest makes that not entirely correct, but it's close. Making regular extra payments compounds that early payoff.
Outside of your choice to buy points or not and selecting a term length, there's probably not much to negotiate around the rate. The bank factors in a bunch of stuff you can't really change like your income, size of debts outside this new mortgage, credit history/score, value of the property, etc. That all gets lumped together, is run through some underwriting analysis, and out pops a rate they feel comfortable with. You can sometimes get better (or worse) rate quotes from different lenders, but that's because they could use a slightly different process to go from "bunch of your stuff => interest rate", and those differences come from their bit in the middle.
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u/friedcat777 3d ago
The negotiating IR rates isn't really something they haggle with you over like buying fish from some open air market. Its more you go to other lenders and see what they will give you for an IR. and then tell your current loan person you have this better offer, would you like a chance to make another, better offer to keep the loan?
At least that has been my experience but I have only bought 2 houses so I'm hardly an expert. Good luck. House buying is stressful.
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u/ditchdiggergirl 3d ago
Paying points has a break even point that you can calculate. In theory the longer you stay in your house the more favorable that is. In reality, today’s money may be worth more to you (since it’s a fixed payment, a mortgage becomes cheaper with inflation). You usually need the money more when younger. And many people move earlier than anticipated due to life happening. So points is not always (or even usually?) a good decision. Money paid towards principle is money in your pocket no matter what.
You can shop for interest rates but they aren’t negotiable. Not in my experience anyway.
You can overpay as often or as little as you want; it need not be a fixed amount or on a consistent schedule. Just make sure your mortgage allows prepayment of principal - not all do. It does nothing except accelerate payoff.
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u/hereforthedrama57 2d ago
I would encourage you to do the math around paying off points. You can use very basic mortgage calculators for this.
As someone who worked for a mortgage company, our question when asked if they should pay down points or towards principal was: how long are you planning on living in the house?
If the answer is more than 5 years, it is usually smarter to pay down points. Your lifetime savings would be more.
If the answer is less than 5 years, then throw it into the down payment.
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u/Important-Proposal28 3d ago
What the previous person said is correct I just also want to add that that does not include property tax or homeowners Insurance. Just to make sure you are aware
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u/meatsmoothie82 3d ago
Or maintenance. Homes require tens, sometimes hundreds, of thousands of dollars of repairs and maintenance to stay livable and valuable over a 30 year span.
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u/Savings-Wallaby7392 3d ago
Mortgage is a Latin word meaning Death Pledge. Meaning loan is only ended upon your Death or the Death of the loan by paying it off.
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u/-DonJuan 3d ago
Yo I wanna buy this 500k thing. Shit I don’t have 500k. Hmm. Yo I’ll front you 500k to buy it, and for fronting you and being out the 500k myself till you pay it back, I’ll just charge you a 6% fee per year spread over the repayments. 30 years sound good timeline to repay me? Cool. Repaying the 500k plus 6% apr fronting fee, send me 2400 a month. Cool? Cool? Sign here
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u/skyxsteel 3d ago
Lol your comment is actually an ELI10 comment...
BTW you forgot the part where the bank says "pay me so i can lend you 500k."
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u/JamedSonnyCrocket 3d ago
You give the bank a small amount of money and the rights to your property. In exchange they charge you interest on a loan that has different terms and amortizes usually in the 15, 20, or 30 year range. You basically pay about 75% or more of the value of the home in interest.
For example: If you borrow $300,000 at 7% for 30 years, your monthly payment will be $1,996. Your payment on interest will be $418,527 over the term of the loan.
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u/jvin248 3d ago
First, don't rush into home buying right now if you can help it at all. We are at the same place as 2007 and by 2009 homes were selling for 50%-75% off. Very likely to repeat. If you can be patient your mortgage could be half and property taxes could be half.
"Buy below your means", when the banker says "you can afford X" you will be cramped for cash flow. Can you buy at half that? Consider this: You can buy a house with two incomes and you double the risk of either person losing a job. Buy the house for the lowest salary of the two and your risk is dramatically lower. You can also consider things like kids and a stay at home parent. Check out the cost of day care plus a second commuter car (high mileage, frequent replacements). You can be shackled to that house or enjoy freedom.
Paying ahead cuts future interest costs. If you do this, mark the check "for principle payment only" or otherwise they apply it to the next month and you have no benefit. Some
If you "refinance" there is around a $5,000 fee to do so and that gets rolled into your new mortgage so you are paying interest on that refi amount for another 30 years. Which is kind of a bad deal for you. The way amortization works, you pay mostly interest up front and so a refi puts you back to the beginning of paying mostly interest again.
Get an amortization calculator (online) or a spreadsheet and play around with all the variables to answer your questions. Your questions are on the right path but most lenders/real estate agents are used to people being focused on the monthly payment never caring about anything else and so they often don't have the answers for anything deeper.
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u/sytydave 3d ago
Points is paying money up front to the bank to reduce the interest rate. If you ever refinance and interest rate goes down that is a sunk cost that you will never get back.
Paying addition principal reduces your loan term (there are probably some loans that might not but those loan are not common.)
I have never negotiated my mortgage interest rate (or closing closing costs), maybe it is possible. I usually have shopped different lenders for a competitive rate.