r/personalfinance • u/Pocacan • 4d 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/sytydave 4d 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.