Negative Points - Use them to your advantege

What are Negative Points?

Instead of paying points for a lower interest rate, with negative points you actually take on a higher interest rate in return for the bank paying some or all of your closing costs. As shown in the simple example on the main points page, negative points can really work to your advantage when used the right way.

Another name for negative points, which is mor common is a "no cost loan" This is the situation where a higher rate is taken in return for paying no costs at the closing.

Many people shy away from negative points because they have it so ingrained in their minds to go for the lowest interest rate, but the idea is to pay the least amount of money, right?

If you could pay only $3,000 for anyone (especially the bank) to cover $5,000 of costs for you, wouldn't you jump at the chance?

As with all points, the idea is to not be "average" because banks base all their charges for points on the average borrower who will keep a 30 year loan for about 5 years. Because average borrwers are few and far between, most borrowers can benefit from taking points.

When you know you will be keeping the loan for a shorter time than that "average" it is time to take a look at negative points.

How Negative Points Work
In the same way that you will pay a point for approximately a 1/4% lower rate, negative points work in reverse and you receive a point for approximately a 1/4% higher interest rate.

For instance, on a $200,000 loan, for taking one negative point you would receive $2000 toward your costs and 1/4% higher in rate that would cost about $32 per month. It would take 62.5 months to have paid $2000 in higher mortgage payments.

If you were to keep the mortgage just 3 years, it would cost just $1,152 for that $2,000 payment you got from the bank!! How many times can you get the bank to pay you?

Of course, every example is different so make sure to check with your mortgage professional for the exact offer that your mortgage would qualify for.

The Rules Limit Negative Points
Now, before you get too carried away about all the money you can get the bank to give you, there are rules attached to these "negative points.

First and foremost, negative points can only be used to pay the costs of the mortgage. You cannot use them for a downpayment, you cannot get money back.

You can use the money to pay bank fees, lender fees, appraisals and other costs.

Who Are Negative Point Loans For
Two categories of borrowers gravitate toward negative point loans. Borrowers who will only be in a loan a short time like them because they will not be paying the higher interest rate for very long and borrowers who are short on cash.

As discussed above, short term borrowers are looking for the way to pay the least amount of money for their total mortgage package.

For the borrower short on available cash, having the bank pay the costs will allow them to either get a loan or might leave the cash they have to buy other things they will need for their house.

Zero Cost Loans
Zero Cost Loans are just a way of using negative points. In this case, though, the bank will cover all the costs of the loan.

More detail is in the zero cost loans article, but the one thing to be careful of when it comes to zero cost loans is that you are dealing with an honest mortgage professional that will not charge you a higher interest rate than necessary just to pad their own pockets.

Summary
Negative Point Mortgage Loans can be a great advantage to the right borrower.

Do not be afraid of exploring this opportunity and definitely do not shy away from the idea of negative points just because of the higher interest rate.

It never hurts to consider all the options and you have to remember that the idea is to pay the least amount of money. The lowest interest rate does not always cost less than other choices!

If I can help you to save money on your mortgage or if you have questions about this article or suggestions of how I can improve this article, please email, use the chat or fill out the information request form.

Harry Smith email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-514-9000	Drew Smith email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-703-7770
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