Your credit has everything to do with home mortgage rates as
lenders charge more points and higher interest charges to
consumers with bad credit. Poor credit always implies greater
risk, so lenders are entitled to be compensated for the risk
they are taking.
If you are a borrower who enjoys good credit, however, you
should at all cost avoid getting into deals where the rates and
points are at par with those for bad credit. There are plenty of
cases of borrowers with good credit being charged the same rates
as those with bad credit. Enjoying good credit requires effort
and sacrifice, so you have every right to be charged much better
rates than consumers with bad credit. Even if it means having to
look a little harder to find them, you should pay rates that you
deserve.
Explaining Risk and Loan Points Every point on a loan refers to
the fee amount of one percent of the loan amount. Consumers with
good credit may be charged no points at all while bad credit can
earn as many as four points. However caution is necessary as
unscrupulous lenders may charge up to ten points if they think
they can get away with it. It is up to you to make sure that
they don't, in your case.
Nevertheless there are situations where the lenders have to take
risks far greater than the average. In such cases it may be
justified to be charging more than the normal rates. Brokers
often claim that they charge higher points as they are taking
the risk of lending to those no other lenders will lend to. More
often than not, this may not be true. With sufficient effort and
time, a consumer will be able to find a lender willing to lend
him the loan. These lenders are much more likely to treat the
consumer in all fairness.
Not giving due attention to points being charged can prove
costly to a consumer. Different terms may be used for points
with some examples like origination fees, broker fees, discount
fees and yield spread premium.
Front and Band End Points Despite these terms, there are two
basic types of points. The first is the upfront fees that the
consumer pays to the lender. It is a form of compensation paid
to either the lender or the broker for making the loan
transaction possible.
A back end point is the other type of points that the lender
pays to the mortgage broker. Sometimes they act as extra
incentive for a particular loan. But it is mostly for loans
given at a higher rate of interest as a reward to the broker.
The problem occurs when these points spur unscrupulous lenders
to hike up the rates with the consumer being absolutely unaware
of it.
About the author:
Paul Lerner enjoys writing about a variety of mortgage topics,
including advice on getting a
home mortgage quote.
