Paying (and Not Paying) Points for Your Mortgage Loan

By Karen Lawson
Loan Page Columnist

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If you have bad credit, you can still get a home loan, but your mortgage lender may charge additional fees due to credit risk. Credit risk means that the lender has determined that there is a higher-than-average risk involved in making a particular loan. If your credit score falls below the acceptable risk level, you may be asked to pay additional fees to your lender.

These additional fees that those with less-than-perfect credit are asked to pay are often expressed as points, or percentage points. Points charged are equal to a percentage of the amount of your mortgage loan.

Doing the Mortgage Math: How to Calculate Points

Your mortgage company calls and tells you that the good news is that your loan is approved, but the bad news is that because you have bad credit, you will have to pay an extra point to get your loan. OK, how much is a point?

Let's say that your mortgage loan amount is $250,000. A point for this loan amount would be one percent of $250,000, or $2,500. Using a calculator, you would multiply the loan amount of 250,000 by .01 to arrive at the amount of $2,500. Points are generally paid as part of your mortgage closing costs.

To Pay or Not to Pay: Negotiating Points on Your Mortgage Loan

Points may be negotiable, and it's advisable to shop around for a mortgage lender that does not charge points. Ask your lender if they are willing to waive all or part of the points. If you do pay points, it's important to know that a new mortgage loan offers a great opportunity for rebuilding your credit. Making your mortgage payments on time every month can help improve your credit score.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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