Potential homeowners who are shopping for mortgages in Indianapolis IN are often presented with the concept of “points”. Often, these home buyers will choose a home, let their realtor introducing them to a lending agency, then have the loan officer begin talking about points as if it is something the buyer should understand completely. This not really a fair tactic, that loan officers use terms that the borrower may not understand. If it is being done intentionally to intimidate, then it is often a good idea to walk away from that lending firm.
On the other hand, learning the basic terms associated with getting mortgages in Indianapolis IN is often a good idea. Your loan officer will respect you more if he knows that you have done your homework, and that he does not have to baby you through the process.
Points have some similarities to down payments. Both are pre-payments to the loan. However, a down payment goes toward the principle and points go toward the interest rate. In other words, if a potential homeowner provides a down payment of $100,000 toward a $1,000,000 house, then he will be financing $900,000. However, if he pays $3,000 in points (this is 3 points, with each point worth 1% of the loan principle), then his interest rate will drop typically 0.375% (1/8% per point).
Another similarity between down payments and points is that both may be required for the loan. Providing a down payment can be a demonstration that the borrower can save money, an indicator that he can handle his finances. A certain number of points may be required on the loan as well.
In addition to any requirements for a down payment or points on mortgages in Indianapolis IN, many borrowers decide to exceed the minimum on one or both. One of the reasons they would do this is related to how long they plan to remain in the home. If they are purchasing a home to keep for decades or longer, then many financial advisors feel that paying the minimum down payment allowable in conjunction with paying the maximum number of points they can afford, makes the best financial sense. Those seeking mortgages in Indianapolis IN are advised to research this subject in greater detail, until they understand for themselves why this is true.
