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You Don't Have to Pay Discount Points or Origination Fees.

In fact, it's not often that paying either is a benefit to the consumer. Absolutely every lender can offer a no-points, no-origination-fee loan. The loan officer simply increases the interest rate by enough to cover the required spread. If the required income on a loan is 100 basis points minimum, then the loan officer will quote you something like this:

7.00% 1 point

7.125% 1/2 point

7.25% o points

Each rate would net the lender the same amount of money, in the form of either an increased interest rate or more points. Which do you choose?

It's really easy to calculate. Simply compare the payments and the costs associated with those payments. For instance, on a $200,000 30-year loan at 6.25 percent and 1 point, your monthly payment would be $1,231, and the loan would cost you $2,000.

Now increase the rate by 1/4 percent and pay no points. The payment would be $1,264, and the loan would cost you $0.

The difference in monthly payment is $33. Take that difference and divide it into the $2,000 in points you paid, and the result is 60.6 months, or five years. It will take you five years to recover your "point cost." That's an awfully long time, in my opinion.

Yes, the $2,000 can be tax-deductible, and you're still saving that $33 each month over the life of the loan, but I suggest taking that same $2,000 and paying your principal down directly. Or you could simply keep it.

Or, you could take that $2,000 and invest it in a mutual fund or a stock, or put it aside for retirement. I've just never been a big fan of discount points or origination fees when obtaining a mortgage. I can never seem to get the numbers to work out for paying more money to get a lower rate.

Rate Quotes Are Worthless Unless Your Rate Is Locked In.

An interest-rate lock is an interest-rate guarantee. When you get the rate you want, you have to physically lock in that rate by telling your loan officer, "Please lock that in." Your loan officer will not lock you in automatically. It requires a literal request on your part.

There are various ways to lock in your rate, just as there are various lenders and protocols. There is no universal standard as to when a rate is locked in, how it's locked in, or who locks it in. Each lender can have a different method, but the effect is the same.

"I want to lock that rate in for 30 days," you say.

"Sure, I'll lock that in for you right now," says your loan officer. "I'll e-mail your lock confirmation right away."

At least, that's how it should work. When it comes to your interest rate, take no verbal guarantees. You need to get your rate lock in writing, by fax or by an e-mail confirmation. Accept no verbal's.

One note: Before you get your rate lock guarantee, your loan officer must first lock that rate in with the lender's secondary department, or, if you're using a mortgage broker, the broker must contact the wholesale lender and get the rate locked in. Just because you've requested a lock from your loan officer doesn't mean that it's automatic. You're close, but it's not official.

Most locks don't require any fee if you're locking for a 30-day period. Longer lock requests might require money up front, but usually only if you're locking beyond 90 days.

Your loan officer must next lock you with his people, who will, in turn, confirm that request to your loan officer. It is at this point that you should get your lock confirmation from your loan officer.

I point this out because I have personally been in situations where I literally had several loans that all wanted to lock in at the same time during a very volatile period. When I was a mortgage broker, I had to complete the various lock forms by hand, fax them in, and use the time stamp on my fax request as proof of when I requested the lock.

If there was a mortgage repricing during the course of the day, and the lender raised its rates officially at, say, 2:19 p.m. PST, then the lender would honor all locks that I could prove were requested before the rate change—for example, if my time stamp had 2:16 p.m. PST. Sometimes I couldn't get all of the lock requests in fast enough. Some people got their rate locks; some did not.

Even though the buyers had told me to lock them in, those requests could not be honored until I got my confirmations from the lender. Some would get locked; some would not. Locking is a physical process, and it can take time.

Good loan officers will tell you this ahead of time—that nothing is guaranteed until the loan officer receives confirmation from either her own secondary department or her wholesale lender. Unfortunately, many loan officers will not do this. You could think you're locked in and simply watching rates go up for everyone else.

If you think you're locked in, but you don't have your lock confirmation, don't take it for granted, regardless of what your loan officer tells you.

 
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