What is the difference between a DISCOUNT POINT and an ORIGINATION FEE?
What is the difference between a “discount point” and an “origination fee”?
Many buyers get confused with the differences, benefits or costs associated with “discount points” versus “origination fees”. Let’s break them down:
A “Discount Point” is 1% of your loan amount and is actually “prepaid interest” to buy DOWN your interest rate. The more “discount points” you pay, the lower your interest rate. HOWEVER, remember these are PREPAID so they are paid at closing. This can be costly and is it “cost effective”? It depends. First, do you have the money? And Secondly, how long you plan to stay in that mortgage. If the discount points cost you, for example, $6000
($300,000 mortgage x 2 points = $6000)
and it reduces your monthly payment by @$90/ month, $6000/$90 = 66 months or 5.5 years! Do you plan to stay in that mortgage for at least 5.5 years? If so, discount point(s) MAY be worth considering. You will just need to be prepared to shell out an additional $6K in addition to your closing costs at closing. Remember to speak with your tax accountant as these points should be tax deductible in the year you pay them.
An “Origination fee” does NOT related to rate at all. This is the fee to “originate” your mortgage. Again, it does NOT have ANYTHING to do with interest rate. It is a FEE associated with acquisition. You typically can either choose to pay the origination fee OR choose a higher interest rate and the lender will pay it on your behalf. Again, the pros and cons depend on many factors. It is important to discuss all of your options with your mortgage lender.
NOTE: Be sure to review your Good Faith Estimate which covers all of the closing costs associated with your mortgage. This will detail the “discount point(s)” if you choose to buy down your rate, the “origination fee”, if you choose that option, and your interest rate that is reflective of those choices.
Ready? You can easily apply online at www.fcfs.net
Questions? Call us! 602.294.9288
or email at mortgagedr@fcfs.net
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Having a dream is good, Owning one is better!
Leslie Nilsen
Owner/Broker
First Class Financial Services, proudly Arizona mortgage lending since 1999.
602.294.9288(O)
602.294.9830(F)
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NMLS #162494
First Class Financial 