Loans
|Paying for a Discount? Points and Mortgages
The following is from an article published in the Wall Street Journal, September 1st, 2020:
It’s almost as though you have to pay points for the best scenario because it’s just a much better deal.
Our response: Ugh. No. Not if you go with a lender who isn’t a mortgage factory, cranking out loans over the Internet.
Who’s Right about Discount Points?
Points. Call them “Discount Points,” if you please. But we at UHL recognize that in the majority of instances, points provide no discount at all. The amount of payments necessary to recover the upfront fee to reduce an interest rate by 0.25% is not realistic for the average borrower.
Are we saying the Wall Street Journal is wrong? No, of course not. Neither are we naming names and going on an opinionated rant. We are simply taking a look at where that WSJ statement is coming from.
The Assumptions
Lender A, B, and C are three of the largest lenders in America. Predominantly online lenders. So, keep in mind that borrowers who see and agree to these rates would click a big red “Start” button and immediately be led down a fast-track, self-serve mortgage experience. Will they be making informed decisions based on the personalized advice of a mortgage expert? Maybe. Maybe not.
Rates are based on a loan amount of $300,000 and 30-year fixed term. Rates were pulled September 3rd, 2020 @ 12:00 PM
Lender A. Interest Rate: 2.99% Included Points: 1.875
Lender A’s quoted rate includes 1.875 discount points. How were we able to find this out? By scrolling down to the disclaimer button. Once clicked, we are brought to a second “Get Started” page. A little more scrolling and a second click of the disclaimers button… Ah-hah! Does every borrower follow this click path?
Lender B. Interest Rate: 2.875% Included Points: ???
The disclaimers of Lender B were more readily available, listed at the bottom of the page, rather than beyond a button. Cool. But there was something disconcerting: a disclaimer that says “Includes points/fees.” How many points? Mysteriously absent from the page… Hm.
Lender C. Interest Rate: 3.250% Included Points: 0
Sweet, no discount points! It took a 7-question survey to find out today’s rates but we got there.
UHL Interest Rate: 2.875% Included Points: 0
Rates on our site are always listed with 0-points. And it says so, right there. For those interested in how mortgage points might effect the rate, there’s an easy-to-read chart. Scroll down the page and your assumptions are highlighted in the call-out box. No digging, clicking, or information sharing necessary.
The Comparison
Let’s draw these numbers together. Lender B and UHL offer the same rate. Except Lender B charges an undisclosed upfront amount to receive that rate. Lender C charges 0 points, just as UHL does. Little problem. Lender C’s 0-point rate is 0.375% higher than UHL’s. And Lender A? We probably don’t need to say anything there.
The Conclusion
Points suck. Okay, okay, that sounds a little harsh. But there is truth in numbers. (Such as the numbers above). Unfortunately, not every potential borrower will see the numbers in their truest form. This is an age when it’s widely believed the internet offers the best deal and we want to make known this is not the case with mortgages. The fact that we offer personalized service that a computer never could is an article for another day. So, if for no other reason, contact one of our mortgage bankers for the best possible rates.
Sources
McLaughlin, K. (1 September 2020). Discount points on jumbo mortgages are hot again. Here’s why. The Wall Street Journal. Web.
