Financing in 77449>Question Details

Will Montgom…, Both Buyer and Seller in Harris County, TX

what are front end and back end points?

Asked by Will Montgomery, Harris County, TX Wed Feb 17, 2010

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Front end points come as either a Discount Point or Origination fee. Discount points can be used to lower the interest rate by paying a fee (interest) up front.

Origination fees are the usual way loan officers are compensated, but they can also receive some of the back end.

Yield Spread Premium is created by the difference between the secondary market interest and your interest rate. The secondary market rate is not uniform -- different purchasers of loans offer different amounts for the same interest rate. Also the secondary market rate fluctuates all day long every day. The YSP is often referred to as the back end.

Banks make YSP when they sell their loans to FHLMC and FNMA and other investors. Mortgage brokers make YSP when they sell their loans, too. Only mortgage brokers are required to report to you how much they made -- bankers are exempt from telling your their back end or YSP.

This can be confusing if you look at a Good Faith Estimate from a broker and see they're making a couple of percent on the loan, but the banks YSP is blank. This would be true even if the bank's interest rate were considerably higher than the broker's. Of course since both banker and broker sell into the same secondary market, the higher rate means a higher back end, even though you think it's zero.

So, when comparing loan offers always look at the bottom line(s) -- how much money do you have to bring to closing and how much will your monthly mortgage payments be? Take the combination that makes the most sense for your situation, and just ignore the back end. Do be careful when comparing, though.

One estimate of insurance may be way off (low) and you get a surprise to find the total payment is higher after you close because the insurance is nowhere as cheap as on the GFE. Taxes, ditto.
The new rules for GFE tolerances may seem to protect you, but the fact is you have to be an accountant to understand what they're telling you.
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2 votes Thank Flag Link Thu Feb 18, 2010
Please speak with a lender about loan questions and concerns. Are you pre-approved? If not, that should be the first step and go over this plus all other questions with your local lender at that time. If you don't know a "good" local lender I suggest starting with your bank whom you already have a professional relationship with. Best of luck.
0 votes Thank Flag Link Fri Mar 11, 2011
All of the answers are good. Please note that as of April 1st, there will no longer be front end and back end points as lenders will only be able to charge one or the other.
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0 votes Thank Flag Link Fri Mar 11, 2011
Hey Will,

Here is a helpful like regarding your question:

We (Wintrust) are lending in all 50 states, please contact me if I can help further.

Kind regards,
0 votes Thank Flag Link Thu Feb 18, 2010
Will: Front End Points are also called Loan Origination Fees, paid by the borrower. The "Front End Points", are usually 1% of the loan amount. Some charge 1.25% or even higher.

Back end points are when a mortgage broker gets extra money for charging you the buyer a higher rate than is par, or the going rate for interest rates at the time they lock in your interest rate on your loan.

So it is important that you keep track of interest rates and make sure you are getting the par interest rate at the time you get your rate locked.
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0 votes Thank Flag Link Wed Feb 17, 2010
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