How do you calculate discount point?

Asked by Cloud, Gardena, CA Tue Feb 15, 2011

I was getting a loan amount $235,000 and was agreed to pay 1.5point on it which is $3525 but now that loan amount has decreased to $215,450, then isn't the origination fee goes down, too? $215,450 x 1.5= $3231.75
Please advise

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9
Dave Stockton, Agent, Bellflower, CA
Tue Feb 15, 2011
Shawn is correct.....do not get confused between "origination fee" (cost of getting the loan) and "discount points"....a term used to describe a fee expressed as a percentage or "points" that some pay to "buy down" the loan interest rate.

For example, a std. loan of $400,000 may be quoted at 5%. The lender may offer to make the loan at 4 3/4 if you were to pay 2 points or 2 percent of the loan amount...$8,000. Why would you do that???

P & I payment at 5% is $2,147.29..........at 4 3/4% it is $2086.59...a difference of $60.70 monthly. It will take 132 payments to break even.....or about 11 years.

If you refinance or sell before that time you spent too much...you lose $$!!! If you stay in the home for 30 years and pay off the original loan, you save a lot of money!!!!!!

Total interest paid at 5%......$373,023.14. Total interest paid at 4 3/4%.....$351,172.16 ....a difference of $21,850 savings for a cost of $8,000...almost a 300% return on investment.

You decide........!!!
2 votes
Anna Kitras, Agent, Las Vegas, NV
Thu May 26, 2011
Cloud, your fee definitely should've gone down becuase your loan amount went down. You are correct.
1 vote
Anna Kitras, Agent, Las Vegas, NV
Thu May 26, 2011
Simply a "discount point" is equal to 1% of the loan amount. For example, if you are being charged 2 "discount points" that in simple terms equals 2% of your loan amount.Let's say you are financing $200,000 dollars, 1 "discount point" would be calculated the following way: $200,000 X 1%=$ 2,000
In the above example, $2.000 would be the cost of 1 "discount point" or commonly referred to as a loan orgination fee that would be part of the closing closts. I hope this was a helpful answer to help you calculate and understand the dollar amount of a " discount point".

Anna Maria Kitras, Broker Associate
Weichert Realtors, Hoshaw & Associates
Redondo Beach,California
Email: annamaria@weichertlosangeles.com Tel: 424-226-8640
1 vote
Mike Bjork, Mortgage Broker Or Lender, Redondo Beach, CA
Thu May 19, 2011
Your assessment is correct. The percentage is based off the loan amount, so your fee should reflect the lower amount (as your loan amount declined).
0 votes
Gerard Carney, Agent, Spring Hill, FL
Tue Feb 15, 2011
when in doubt always ask the lend how and why they do what they do! The point is equal to 1% of the loan amount, so then 1.5 points is calculated by mutiplying the loan amount by .015 and this amount is the total of the 1.5 point amount! as for other fees and rates, please ask you lend to show all truth in what they are offering you and to also show how the calculated the points for the loan.
0 votes
Cloud, Home Buyer, Gardena, CA
Tue Feb 15, 2011
Origination fee total: $5538 - $3325 disc pt , $595 lprocessing fees, $1225 underwriting fees, $194 rate fees
I understand about the other fees I just want some clarification about disc pt. I believe that fees should based on the loan amt. and it should be reduced to $3231 ($215,450 x 1.5= $3231)
0 votes
Stanley Esco…, , Los Angeles County, CA
Tue Feb 15, 2011
Cloud,
You are correct in the math you did! Orgination and/or discounts points decrease or can increase based on the loan amount look at your good faith and advise your lender for better explanation.
0 votes
C2 Financial…, Mortgage Broker Or Lender, San Diego, CA
Tue Feb 15, 2011
A discount point is used to buydown the rate even further than the face value and this cost is directly paid to the lender. Its a similar calculation which is 1% of the loan amount. What does your Good Faith Estimate show? Is it showing an origination fee along with a discount fee?
Web Reference:  http://www.bma-loans.com
0 votes
Cloud, Home Buyer, Gardena, CA
Tue Feb 15, 2011
The reason I ask is because my loan officer insist that I still pay $3525 as points.
0 votes
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