Points & Closing Costs
Points & Closing Costs
Should you pay points? What are points? Is that money going directly into the Loan Officer’s pocket? Well, that depends. This article will look at these questions as well as a few others to see which strategy makes the most sense in the long run. We’ll also look at the math to calculate when points make sense and when they don’t.
Let’s start with the definition. A point is 1% of the loan balance. So if you’re getting a 0K loan, one point is 00. The ‘standard closing cost structure’ will include one point. In fact, the first point is referred to as ‘origination’. The origination is the fee to ‘originate’ the loan. So that first 1% goes directly to the Broker. And depending on your Loan Officer’s volume, he or she will get some percentage of that money.
The remaining portion pays for the lights, the office space, the furniture, photocopier and so on. Part of that money goes to the Loan Officer and the rest pays for the office. That explains the origination. Anything beyond that is referred to as ‘points’ and points are actually prepaid interest; money that goes directly to the Lender. And in exchange for that prepaid interest, the Lender offers a lower interest rate, lowering your payment. We can calculate the breakeven for the decision. You either pay more up front and get a lower payment or you pay less up front and get a higher payment.
Before we look at the math, we have to address a couple of issues. For starters, the points and origination are tax deductible so they don’t cost you as much as it may appear at first blush. If you’re getting a 0K loan (1 point is 00) and depending on your tax rate, that point may only cost you 00 or 00 on an after-tax basis. You’re either paying that money to the government or you’re using it to buy down your interest rate. When calculating the breakeven, always use the after-tax cost.
Secondly, one point buys different amounts depending on what loan you’re getting. If you’re getting a 30-year fixed mortgage, one point will reduce your interest rate by about 0.25%. With loans that are fixed for 5 or 7 years, one point will reduce your rate by about 0.375%. These are not exact figures. They vary by lender and by program. If you’re getting a 2-year fixed loan, one point would reduce your rate by a full 0.50%. The shorter the fixed period, the more one point will buy.
What’s the breakeven for buying the interest rate down? Well, for a 30-year fixed mortgage, the breakeven is usually between 3 and 4 years. In other words, if you sold the property or refinanced the mortgage within 3 or 4 years, you would’ve paid more money buying the rate down. The lower interest rate results in a lower monthly payment but it would take between 36 and 48 months to get the initial investment back. If you kept the house for longer than 3 or 4 years without refinancing, you would’ve recaptured the entire initial investment and be saving money each month for as long as you keep the mortgage.
For a 5/1 ARM or a 7/1 ARM, the breakeven is about 18 months to 2 years. That’s a much shorter period of time because one point buys more in these loan programs. For a 2-year fixed, the breakeven is usually just 14 or 15 months. So if you kept the mortgage for the first two years, you would’ve already saved money by buying the rate down at the beginning. Mathematically speaking, most people are better off buying the rate down.
The problem is that ‘points’ don’t sound very good. It sounds like you’re getting ripped off. Brokers know this so they generally don’t tell you the reality because they’re worried it’ll make their quote appear less competitive. But the reality is that they can help you save a bunch of money if you don’t refinance every year or two. And with lower interest rates behind us, the refinance boom is definitely over and people who refinance now should plan to keep their mortgages for as long as possible. Remember, it doesn’t matter what anybody tells you, refinancing costs money and you should try to do so as little as possible.
The industry has gone beyond avoiding ‘points’. They’re actually avoiding the origination as well. Again, the origination is the first 1% and most people mistakenly refer to it as a point, even though it’s technically different. Anyway, the industry’s been marketing ‘zero point’ loans for a few years already and most people jump at it, thinking they’re saving money. Well, the same math is true for the first 1% as for the second or even the third. If you’re not paying the 1% origination as a closing cost, rest assured, it’s hidden in a higher interest rate. Nobody’s doing loans for free out there and most banks have a minimum 1% origination anyway so you’re paying for it one way or another.
The reason this works is because Lenders pay Loan Officers rebates for loans with rates higher than the current market rate. Assume certain circumstances regarding credit, income and assets yields a market rate of 6.5% and the Loan Officer sells the loan with a rate of 7%, the Lender will pay the Loan Officer a rebate on that loan. If the closing costs do not include the origination, the Loan Officer just needs to raise the interest rate high enough to get a rebate of at least a 1%. And if they want to make more than 1%, they only need to raise the rate a bit more.
This goes even a step further when Loan Officers market ‘no cost loans’. Again, refinancing costs money and the fees associated with a purchase or refinance get paid one way or another so if they’re not itemized in the closing costs, they’re hidden in a higher interest rate. In today’s lending environment, you can mark up a loan so high that you get 2 or even 3% rebate after the loan closes. Don’t get fooled by ‘no cost loans’. It’s just a marketing gimmick.
There are four main categories of closing costs. First, you get the origination and any points you pay to buy the rate down. The second is the lender fees including underwriting and processing. Third, you get all the third-party fees like the credit report, appraisal, flood certification, notary and tax service. The forth category includes the escrow and title fees such as recording, settlement, courier and title insurance. For purchase transactions, there’s one more category for transfer taxes. In California, transfer taxes range from .10 per 00 to almost per 00 in some municipalities.
For origination and points, you can calculate it yourself. The origination will be 1% of the loan balance. If you have a first and second mortgage, it will be 1% of the combined mortgages. If you’ve decided to buy the rate down with extra points, just add an additional 1% for each point you’ve decided to buy. If you’ve got two loans, the points probably only apply to the first mortgage. You could buy the rate down on the second mortgage as well but it’s less common.
The second category is lenders fees. These fees vary widely. Some lenders have underwriting fees as low as 0. Others are as high as 00 or even higher. Also, if you have a second mortgage, there may be a second underwriting fee and I’ve seen those as high as 0. Another fee you’ll see is processing. That’s another lender fee and I’ve seen those range from about 0 to 00.
Here’s my opinion on lender fees. If they’re charging a lot for underwriting, they’re probably using that revenue to help subsidize competitive rates. It’s just a different strategy. It’s not like some lenders are making huge profits while others are making nothing. The lending community has become extremely competitive and individual companies will try to get their revenue from different places. At the end of the day, these fees will be fully disclosed through the APR and that’s always the best way to determine the competitiveness of your quote.
As for processing, anything over 0 is a rip-off. All Loan Officers have processors. They’re real people who process real loans and chase all the conditions required by the Lender. It’s a tedious job and these people have to get paid somehow. I’ve got no problem with a processing fee as high as 0. Personally, I charge 5 for processing. But a processing fee of 00 is a complete rip-off and I would push back hard on anyone trying to charge me that much.
Third party fees are next. In California, you can expect to pay from 0 to 0 for your appraisal depending on what format the lender requires. You can expect or for your credit report, to for tax service, to for your flood certification and to 0 for your notary. Why such a big variance for notary? Because you can have a mobile notary come to your home for the signing. That’s a lot more convenient but it’ll cost you, usually 0 for a single mortgage and 0 for a first and second combo. I should know. I had a signing service before I started originating loans. If you sign at the Title Company, the notary fee is usually .
The forth category includes your escrow and title charges. Escrow fees will range from 0 and 0, depending on the size of the transaction. Expect between 0 and 0 for recording and to 0 for courier services, depending on how many times the documents have to be couriered around. Title insurance is frequently the second largest fee on the closing statement, next to the origination. Title insurance can run you anywhere from 0 all the way to 00 or more, depending on the value of the property.
All of these fees constitute what’s called ‘non-recurring’ closing costs. That means they’re all one-time fees. There’s another category of fees called prepaid items or ‘recurring’ closing costs. These are bills you would’ve had to pay at some point anyway. But because of the transaction, some of those bills are collected ahead of time. These generally include prepaid interest, property taxes, hazard insurance and, in some cases, HOA dues.
A major distinction with prepaid items is whether or not you have an impound account. An impound account allows your property taxes and hazard insurance to be collected at the same time as your mortgage payment. The obvious advantage is that you don’t have any surprise bills during the year and your monthly housing payment includes everything. But the downside is that you have to put some money aside in a reserve account at the time the transaction closes. That means you have to bring more money in at closing, giving the illusion of higher closing costs. In fact, it’s your own money and you’ll eventually get it back but it’s worth discussing with your Loan Officer before you get to the signing.
Overall, if you decide not to have an impound account, you can bank on closing costs and prepaid items between 2% and 2.5%. If you decide to include an impound account, you can expect between 2.5% and 3% in total closing costs and prepaid items. These are generalizations to be sure but they give you a fairly good idea of what to expect.
10 Auto Insurance Myths You Should Know About
10 Auto Insurance Myths You Should Know About
The truth about fallacies of many car owners believing that the insurance premium coverage for their new car is covered, and maybe the truth just might make you change course.
(1) “No-fault insurance means, is it not my fault?” That means that your insurance company pays for your damages regardless of who’s at fault. No they don’t!
(2) “Can the color of my car affect my insurance rate?” No!
What do influence your rate are your vehicle’s year, make, model, body type, engine size, credit history and driving record.
(3)”If I lend my car to a friend and that friend is in an accident, his or her insurance company will pay for the damages…right?” Wrong!
Your car is your responsibility! And guess what, even though you weren’t present at the time of the accident, you still will receive a mark on your insurance record and your insurance premium could possibly go up.
(4) “Is my insurance rate is set by the government?” No!
The government has nothing to do with your car insurance rate. Where you live, your credit score, marital status and your driving record is what actually affects your premium.
(5) “I recently paid my insurance premium. Is my new car I just purchased is covered?”
Not necessarily. Most automobile policies require that the policyholder notify the insurance company or agent within a specified number of days, if indeed coverage is desired for the newly purchased vehicle.
(6) “Is it a fact that male driver under the age of 25 pay more for auto insurance?” Yes! Male driver under 25 years old can potentially pay more for car insurance than female drivers. However, across the board, teenagers and mature adults pay more for auto insurance, due in large part because these age groups are typically involved in more automobile accidents.
(7) “Can my credit score have any affect on my insurance rate?” Your credit score really does matter! Many Insurance companies take your credit score into consideration when deciding to increase or renew your auto insurance coverage.
(8) “Even without comprehensive coverage, am I still covered for theft, windstorms, and hail and deer accidents?” Many drivers believe that if they only purchase collision insurance, which covers accidents involving objects, that they will also be covered for incidents that involve vandalism, hail, animal accidents and fires. That simply is not true. You need to purchase both collision and comprehensive coverage in order to fully protect your vehicle from all of these situations.
(9) “Can my personal auto insurance cover both my personal and business use of my car?”
If you occasionally use your personal car for business purposes such as transporting clients, going to and from meetings or hauling business equipment, then you will more than likely need to extend your personal car insurance to cover your business use as well. Plus, if your employees use their car while working for you, you will want to also obtain a separate non-owned car insurance policy.
(10) “I’ve never had nor been involved in a car accident, do I still need automobile insurance?” Yes!
Some drivers are lucky enough never to have been or to be involved in an accident. However, if by chance you do have an accident; your risk of losing everything is great. Car insurance is the best protection you can have in the event an automobile accident occurs. It’s also a legal issue – you are required, by law, to have some basic form of auto insurance, and failing to do so carries some fairly strict punishments.
How To Find The Best Rates On Car Insurance In Tennessee
How To Find The Best Rates On Car Insurance In Tennessee
If you’re looking to find the best rates on car insurance in Tennessee, you’ll need to shop around. It sounds simple, but it’s a tried and true way of getting low auto insurance quotes in Tennessee. Begin by talking with current policyholders. Next, set out to get your own car insurance quotes. Then, do some research on the insurance companies in which you’re interested. Finally, sign the dotted line!
Talk with other car insurance policyholders.
There’s undoubtedly someone in your circle of family, friends, neighbors and coworkers who has a car insurance policy. Ask around. Find out who’s satisfied with their cheap auto insurance rates and why. Also find out who’s unsatisfied and why. Word-of-mouth is the most honest form of advertisement. Satisfied customers will want to brag about the best rates on car insurance in Tennessee, while unsatisfied customers will want to warn you – and prevent the company from doing any more business!
Get a free auto insurance quote.
Consider the companies your friends have suggested and get online. There are countless websites out there claiming to provide the best rates on car insurance in Tennessee. Take one up on its offer, and compare the different auto insurance companies and policies.
Investigate the car insurance companies in Tennessee.
Once you’ve found some low auto insurance quotes in Tennessee that seem promising, it’s time to research the companies providing the coverage. First, check the financial rating of each insurer by using an independent research company. Then, visit the Better Business Bureau online to check up on complaints filed and how they were handled. Finally, contact the Tennessee Department of Commerce and Insurance to find out if the insurance company is licensed to sell auto insurance in the state.
Seal the deal!
The final step is self-explanatory: Contact the insurance company, speak with a representative about any questions and turn your low auto insurance quote in Tennessee into an insurance policy!
Life Insurance Rates
Life Insurance Rates
Life insurance at the present time is very affordable. Competition in the life insurance market together with the cost savings that life companies are making by operating on the Internet has depressed insurance rates, bringing them down to historic low levels. For a healthy non-smoker in their 20s, life insurance rates can in fact be as cheap as £5 per month!
However, there are many factors that influence the final outcome of the life insurance rates for any one individual. Everything from hereditary diseases to diet will figure and, depending upon the answers that we give to the insurance company, will see our life insurance rates climb higher or drop lower than the average rates for our age.
So, just what factors will affect the insurance rates that a life company will quote for life insurance? Here is a summary of the most important elements to consider: –
Age – The younger you are the lower your life insurance rates; the older you are the higher your insurance rates. Young people are seen overall as less of a risk to the life insurance company than older people. This is because the life company simply anticipates that young people with live longer than older people over a finite time from the current date forward. As a result, young people will contribute a higher number of monthly insurance payments before they die than will older people over the same timescale.
If you’re in your 40s or 50s and lead a very active and healthy lifestyle this age-bias may seem a little unfair. However, given that a 25 year-old may clock up more than fifty years of monthly repayments to reach the age of 75, you on the other hand would only complete twenty-five to thirty-five years worth of repayments to reach the same age. When factored in with the increasing likelihood of death the further we get to our life expectancy limit – so heightening the risk that life companies take on paying out – it is quite easy to see why life insurance rates are bumped up to compensate as we get older.
Smoking – Non-smokers have lower life insurance policy rates than do smokers. In fact, should a smoker quit and then take out life insurance they could save as much as 50% on their insurance rates. If you are thinking of quitting though it is important to check your life insurance policy, as some insurers will not reduce the rates if you quit during the life of the policy, forcing you to change insurance company if you want to benefit from non-smoker rates.
Pre-existing Health Conditions – Hereditary diseases, especially those that run through both sides of the family, may have a significant impact on rates quoted for life insurance. Also, if you are required to attend a medical and are found to be less healthy than the ‘average’ for your age, then insurance rates are likely to be more expensive.
Considerations For Home Owners As They Shop For Insurance (5)
Considerations For Home Owners As They Shop For Insurance
Almost every single day there are people visiting insurance sites and paying far too much money for their homeowners’ insurance. You can set your clock by it. Do not expect the insurance companies to protect you on this one, though. This is all down to you — and that’s exactly why you need to read these tips.
Many home owner’s insurance policies will actually cover the contents of your car no matter where it is parked – at home, at work, at the mall, wherever. You will only get the current value of the items within the car, though, and that includes depreciation. Hopefully a thief is smart enough to only steal the good stuff!
Before you buy a home you should check to see how much the insurance will cost for it. Different factors determine how much you will be paying for homeowner’s insurance such as what the home is made of, the size of it and the age of different systems within the home like the electrical system.
Installing fire alarms in your home can lower your homeowner’s insurance by up to 10 percent annually. This is because insurance companies feel better providing insurance to homes that are equipped with fire detection. There are certain insurance companies that will give a homeowner an even bigger premium discount if they install numerous fire alarms.
Having an alarm system or home security system will lower your home owners insurance premiums. These systems can be inexpensive to install and give you piece of mind both while you are at home and while you are away at work, or even when you go out of town on vacation.
See what discounts your policy covers in regards to new or renovated homes. The majority of insurance companies offer new home discounts, and you could qualify if the house was built within the last ten to fifteen years. A newly renovated house is inexpensive to insure, so find out when the most recent major heating, electrical, and plumbing updates were finished on the house.
If you have worries about people being injured on your property – although I cannot imagine why – you do have coverage under your home owner’s insurance for personal liability. This coverage is typically 0,000, but you can have it raised if you feel that is insufficient coverage for your home.
Make sure your insurance company knows how to reach you, if you cannot live in your home due to damage. For example, if you experience a fire or natural disaster making your home inhabitable, provide your insurance company with your temporary contact information, whether it is a hotel or a friend’s house.
When damage to your home occurs, take appropriate action to protect your property from additional damage until it can be repaired. For example, if your roof is damaged, be sure to cover the damaged area with a tarp or other protective covering to prevent water damage until the roof can be repaired.
By using tips like these focused on homeowners’ insurance, you will begin to understand how this type of insurance works and how you can save a lot of money without having to give up on the coverage features you need. Always make sure that you’ve learned about insurance before you sign on.
How To Find Affordable Health Insurance In Nevada
How To Find Affordable Health Insurance In Nevada
Insurance costs can often seem prohibitive, but the truth is most of us need several different types of insurance, including health insurance. Still, it is no secret that the cost of health insurance here in Nevada is going up faster than the overall rate of inflation.
But without health insurance one catastrophic accident or illness can wipe out an entire generation of savings in the blink of an eye.
Health insurance costs a lot because healthcare itself costs a lot. All of our modern medical miracles are certainly amazing – but each one of them comes at a price. And, ultimately, it is the purchasers of health insurance who pay the bulk of the cost.
That’s one reason so many people in Nevada are doing everything they can to find affordable health care right here in Nevada. It’s not just enough to want affordable health care, or to complain about the lack of affordable health care, ultimately it comes down to taking action to find that affordable health care.
So what can you do to find affordable health care? Start by determining what kind of health coverage is most important to you and your family. Next, decide how much you can afford to pay each year for your own health care, over and above any premiums that you must pay for your health insurance.
For example, if you have very young children then you may want an insurance that pays for frequent doctor office visits. If you have very old people in your household you may want insurance that gives the best hospital coverage, or the best prescription coverage.
In other words, make a list of the kinds of health coverage that are most important to you and place them in order of importance.
And knowing how much you can afford to pay for your own medical care out of your own pocket gives you a good idea of the deductible you can afford to pay – the higher your deductible the lower your monthly premiums will be.
Now, when you go online to compare health plans and prices among various insurance companies you can more easily and quickly design a health plan which accurately reflects your family’s health needs.
There may actually be a few things you can do ahead of time to help keep the cost of your health insurance as low as possible. If you smoke, stop. Smoking endangers your health and increases the cost of health insurance substantially. Likewise, if you are over weight, do whatever you can to lose weight.
Don’t expect to find a health insurance plan that’s absolutely perfect for you and your family at a price you can afford to pay. Such a plan may not exist. Compromises are bound to be necessary. But if you begin your search knowing ahead of time what is most important to you and your family, you stand a better chance of finding affordable health insurance right here in Nevada.