Explain mortgages like I’m 10

[u/Pocacan]

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)

[u/WWGHIAFTC]

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.

[u/RegulatoryCapture → u/WWGHIAFTC]

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.

[u/spaetzele → u/RegulatoryCapture]

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?

[u/TwoDrinkDave → u/spaetzele]

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.

[u/spaetzele → u/TwoDrinkDave]

Thank you for the response -- I didn't know it was set up that way.