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Points on a mortgage loan can be one of the most confusing aspects of financing your home. The process of taking out a mortgage is intimidating enough…throw in unfamiliar jargon and fees and you’ve got a recipe for financial nightmares. Points on a mortgage loan come in two flavors and depending on the lender and your financial situation you may or may not be required to pay both types. Here are several tips to help you make sense of points and decide paying points is right for you.

What Are Mortgage Points?

Points come in two varieties: there are discount points you pay to your lender and origination points you pay to the mortgage broker arranging your loan. Regardless of the type of point, one point is always equal to one percent of your mortgage amount.

What Are Origination Points?

The first variety of “points” you’re likely to encounter with your mortgage are origination points. This is a fee you pay to the Mortgage Company or broker for their part in “arranging” your loan. Origination points are not set by the lender and vary from one mortgage broker to the next. This fee is not the only form of compensation that your broker receives; mortgage brokers will also mark up your interest rate to get a commission from the wholesale lender. Because you’re already paying the mortgage broker a fee this markup is completely unnecessary and you should simply refuse to pay it. This unnecessary markup is called Yield Spread Premium and avoiding it is the topic of the free video tutorial available on this site. A reasonable fee to pay for mortgage origination is one percent of your loan amount and not a penny more.

What Are Discount Points?

Discount points are paid to your lender at closing in exchange for something. That something could be a lower mortgage interest rate, or is simply paid as a condition of qualifying for your loan. Your lender might require that you pay two points to qualify for a $150,000 mortgage; in this case you would be required to pay 2% of $150,000 or $3,000 at closing. If your lender does not require you to pay points you might consider paying points to lower your mortgage interest rate.

There are pros and cons to paying points to your lender in exchange for a lower mortgage rate. One disadvantage of paying this fee is that while it may lower your mortgage interest rate it does not lower your loan balance. You can generally expect that paying discount points will lower your mortgage rate by .25 percent for each point you pay. Remember that one point is one percent of your mortgage amount, due at closing. Whether or not it makes sense to pay discount points in your situation depends mainly on how long you plan on keeping the loan.

There are other advantages to paying discount points. The IRS considers discount points to be prepaid mortgage interest and you will be able to deduct part or all of your points depending on IRS rules for your situation. Before deciding if paying points makes sense you should determine how long it will take you to recoup the expenses based on the savings you’ll get from a lower mortgage payment. The longer you plan on keeping the loan the more sense it makes to pay points and recoup your expenses. You can learn more about your mortgage options with my free video toolkit. Register today with the link at the top of this page.

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TORONTO — The growing demographic category of elderly homeowners has drawn a New Zealand-based reverse mortgage company to Canada to compete with Canadian Home Income Plan, which has a monopoly in the market.

Canadian Home Income Plan is a subsidiary of publicly traded Home Equity Income Trust, which also operates CHIP Mortgage Trust.

Privately held Senior’s Money International operated in Australia, New Zealand, Ireland, Spain,

Headquartered in Mississauga, Seniors Money Canada will initially offer its reverse mortgage product in Southwestern Ontario, with lower interest rates than its rival.

It plans to expand nationally next year, to tap into Canada’s burgeoning population of seniors.

According to a 2006 Statistics Canada report, there are 4.3 million people aged 65 and over in Canada, an increase of more than 446,700 or 11.5 from 2001. This is nearly four times as many seniors as in 1956, and many are homeowners.

With a reverse mortgage, the homeowner uses the equity in a property as collateral for a loan. Unlike normal mortgages, however, the property owner doesn’t make payments on the mortgage until they or their estate sells the house.

Reverse mortgages advocates suggest they are a way for older homeowners to tap the market value of their property without moving. Critics argue they can be an expensive form of debt.

Gary Krikler, the chief financial officer for Home Equity Income Trust said the launch of Senior’s Money International has been expected for quite some time.

Found here.

VA and FHA mortgages are government insured loan programs intended to help those with low income and veterans purchase homes. Because these loans are insured by the Federal government they have less risk for mortgage lenders allowing people that might not otherwise qualify to purchase homes. Traditional mortgage loans are also insured; however, they are not insured by the Federal government but by lending institutions like Fannie Mae and Freddie Mac.

FHA mortgage loans are underwritten and insured by the Federal Housing Administration. These loan programs are typically for first time homebuyers with credit problems and require a minimum three percent down payment. Closing costs can be rolled into the loan balance with FHA programs; however, there are mortgage insurance premiums of up to 1.5% required by the housing administration. There are also borrowing limits imposed on FHA loans that vary based on the State the home is purchased.

VA mortgage loans are underwritten and insured by the Veteran’s Administration for individuals that have served in the armed forces of the United States. Unlike the FHA, the VA does not require mortgage insurance or a down payment. VA mortgage loans carry a funding fee of 2.15 percent and this fee can be rolled into your mortgage balance along with closing costs.

FHA and VA Mortgage Loans Losing Popularity

FHA and VA loans are becoming increasingly less popular and Congress has even considered doing away with these programs since 1995. One reason these loans are becoming less popular has been the abundance of loan programs available for homeowners with poor credit or little or no down-payment. Many of these programs do not have lender fees or mortgage insurance requirements.

It is possible to find 100% financing without paying insurance or rolling fees in with your closing costs. The recent credit crisis in the United States could bring FHA and VA loans back into favor as qualifying for a mortgage loans becomes increasingly difficult for homeowners with “bruised” credit ratings.

What is Streamline Refinancing?

FHA and VA loans allow for “streamline refinancing.” This means that you can refinance your mortgage with minimal documentation and underwriting without paying lender fees. The basic requirements are that you not be delinquent in your mortgage payments, that refinancing results in a lower payment, and that you cannot receive cash back from refinancing the loan.

There are a number of different mortgage programs available for streamline refinancing. Many lenders charge a higher mortgage interest rate for rolling closing costs into your loan balance. This is why comparison shopping and having a current appraisal is important before you apply for streamline refinancing. You can learn more about your mortgage refinancing options, including expensive mistakes you’ll want to avoid with my free mortgage toolkit.

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