If Your Bank Sells Your Loan, You May Lose Some Privileges.

A few years ago, I took out a mortgage loan from my bank. Because I had both my mortgage and my credit card with my bank, I suddenly got free checking, a free safe deposit box, and reduced fees and rates on various bank offerings. I even got cashier's checks and notary services at no charge—all because my mortgage was with my bank. Then, after about a year of financial bliss, I was informed that my loan had been sold to another bank where I had no accounts at all.

Guess what? That's right. Since my mortgage was no longer with my original bank because the bank had sold it, I also lost all of those freebies I originally had. And that bugged me. It could bug you, too, but the very fact that your loan can be sold in the first place yields a greater benefit: lower rates.

Sometimes Your Rate Is Not Reduced When You Pay Points.

Mortgage bankers can also make money up front, at the initial loan application, in the form of various "junk" fees, discount points, or origination charges.

A discount point is a percentage of a loan amount: 1 "point" is equal to 1 percent of the loan you're about to take. Thus, 1 point on $300,000 is $3,000, 2 points is $6,000, and so on. The term discount points is sometimes used because points represent a percentage of the loan and are used to lower the interest rate on that loan.

Points are nothing more than prepaid interest on a mortgage. You pay the lender its interest ahead of time, at the beginning of your new loan, and in exchange you get a slightly lower interest rate. Normally, discount point will reduce your rate by about 1/4 percent. Normally.

The fact is that mortgage lenders can charge you pretty much anything they can get away with and still be competitive in the marketplace. A lender might charge you 3 points, but these might not be discount points because your rate is not reduced accordingly. If an interest rate of 8.00 percent is available at 1 point, then 7.75 percent should be available for 2 points. If this is your situation, you're paying a discount point.

Sometimes lenders will charge you points and not reduce the rate at all. In this case, you're getting no discount whatsoever. To see if this is happening to you, ask your lender for various rate and point quotes—say, everything from 6.00 percent to 7.00 percent. For each 1/4 percent change in rate, you should see 1 point. If you're not seeing that spread, ask your loan officer to sharpen his pencil and do the math again.

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