Points or Discount Points is a percentage of the loan amount that is charged by a lender to a borrower in order to offer the borrower a lower interest rate. The more points you pay, the lower your rate, generally. A borrower shoudl really crunch the numbers to determine if the lower payment is worth the cost of paying points. It's not the same from one loan to the next.
When a borrower obtains an interest rate "at par", they typically don't pay any discount points in order to obtain their interest rate.
On the flip side, a lender could charge the borrower a slightly higher interest rate than "par" and give the borrower a lender credit that an be used to pay for their closing costs. This CANNOT be used for down payment. Every borrower's financial situation and financial goals are different. So, the borrower has the choice.
PMI is short for Prive Mortgage Insurance. On conventional loans, this is paid by the borrower when their down payment is less than 20%. This insurance covers the lender in the event the borrower should default on their loan. The cost of this insurance is mainly determined by the % of down payment and credit score. If a borrower enters into a loan paying PMI and eventually pays thier loan balance down to below 80% of the original sales price, they can usually have the PMI removed, but it's not automatic. They usually have to meet certain criteria. For example, the loan must have a good payment history. Paying PMI can be avoided on conventional loans by paying at least 20% down payment. On FHA and USDA loans, this insurance is called MIP, Mortgage Insurance Premium. The borrower pays an "up front" mortgage insurance premium that is usually "rolled in" to their loan as well as an annual mortgage insurance premium. The annual MIP is divided evenly among 12 monthly payments and collected with their monthly payments. The cost of the insurance is set by the respetive governmetn entity and generally the same for all borrowers. On USDA loans, MIP is paid for the life of the loan. On FHA Loans, starting 4/1/13, for those borrowers that pay less than 10% down, MIP is paid for the life of the loan. On VA loans, their is no monthly mortgage insurance. Instead, a veteran pays a one-time Funding Fee per loan that is usually rolled into their loan. The funding fee is waived if the veteran has minimum 10% VA disability. The funding fee increases after the first use of their VA entitlement.
If you need help with your home loan, please contact me. I have 14 years experience in helping families finance their next home. I am familiar with all loan programs and property scenarios, FHA, VA, USDA, Conventional, Homepath, Short Sales, Bank Owned Foreclosures, etc. Iâ€™ll make sure you have all of the information you need to make an informed decision. Customer service and on time closing is top priority. Hope to hear from you soon.
Vino Alonzo, Loan Officer
Castle & Cooke Mortgage