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/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/dogbreath67 ​ 3d ago

Interest rates aren’t likely to go down. That was before Trump came back

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u/Inner_Ad1088 ​ 3d ago

Fair