Your credit has everything to do with your home mortgage rate, since people with bad credit pay more in points and interest. Poor credit always means more risk, so lenders should get paid for the risk they are taking.
If you have good credit, you should do everything you can to avoid deals where the rates and points are the same as for people with bad credit. People with good credit are often charged the same interest rates as people with bad credit. To have good credit, you have to work hard and make sacrifices, so you should get much better rates than people with bad credit. You should pay the rates you deserve, even if you have to look a little harder to find them.
Risk and Loan Points: A Guide
Every point on a loan equals one percent of the loan amount in fees. People with good credit may not have to pay any points, while people with bad credit may have to pay up to four points. But you need to be careful because dishonest lenders may charge up to ten points if they think they can get away with it. In your case, it is up to you to make sure they don't.
Still, there are times when lenders have to take risks that are much bigger than the norm. In these situations, it might be okay to charge more than the normal rates. Brokers often say that they have to charge more points because they take the risk of lending to people who no one else will lend to. Most of the time, this is probably not true. A consumer will be able to find a lender willing to give him the loan if he puts in enough work and time. The customer is much more likely to get a fair deal from these lenders.
A customer can lose money if they don't pay attention to the points they are being charged. Points can be called different things, such as origination fees, broker fees, discount fees, and yield spread premiums.
Front and End Points of the Band
Even though these words are used, there are really only two types of points. The first is the fees the borrower pays to the lender right away. It is a form of payment to either the lender or the broker for making the loan transaction possible.
The other type of points that the lender pays to the mortgage broker are called "back end points." They can sometimes be an extra incentive for a loan. But it's mostly for loans where the broker gets a higher interest rate as a reward. The problem comes when these factors lead dishonest lenders to raise the rates without telling the customer.
