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|  Alcova Mortgage has the answers to the most commonly asked questions. If you don't see your question answered here, you can search our extensive FAQ database or call our office at 1 (877) 552-7150. What is a Point? Points are part of the closing costs that a borrower may or may not pay at closing. A “point” is 1% of the loan amount. Points are paid upfront at closing to reduce the borrowers interest rate and therefore their monthly payments. So the more points paid at closing then the lower the interest rate will be. Many refinance borrowers may choose to pay a point or multiple points at closing to buy their interest rate down. There are also sometimes when customers want loans with “0” points. The borrower will settle for a little bit higher interest rate, but will have less closing costs and thus reduce their “payback period”. The payback period is defined as the amount of time it will take for a person to recoup their closing costs with their monthly savings from their refinance. The example below will explain both scenarios: Customer A Gets a $100,000 new mortgage loan on. With his new loan he is saving $100 per month. His closing cost total is $3000 which includes paying 1 point. So his payback is $3000 divided by $100. So it will take 30 months for him to realize a “true savings” on his refinance. Customer B Gets also gets a $100,000 new mortgage loan. He wanted a “0” points loan, so his interest rate was higher but his closing costs were only $2000. Because his interst rate was higher his savings were only $80 per month. His payback however is shorter-$2,000/80=25 months. Which loan is best? It depends on how long each customer plans on staying in their home. If you are unsure as to how long you will be in your home then it is usually better to go with a “0” points loan. If you believe you are going to be in your home for many years to come it is normally better to pay at least 1 point and your lowered interest rate will pay off for you in future savings for many years to come. What is a Rate Lock? Rate locks are an agreement between the lender and a borrower to guarantee a interest rate on a particular type of mortgage loan for a certain number of days. Rate locks usually range from 15 to 180 days, with some even good up to a year. The longer the lender commits to a rate lock then the higher the available interest rate will be. For example: Bob may get a quote from his lender on a 30-year fixed rate at 6% for a 30 day lock. But if he wants to lock in for 60 days the rate quote jumps to 6.125%. When should I lock in a rate? You should lock your interest rate when you are happy and satisfied with what the monthly payment on your new mortgage is going to be, unless you are recommended to wait by a mortgage professional. If you are happy with the interest rate you are getting and you have deemed it a “good deal” then in most cases it is not worth the risk of trying to wait for a lower rate. If rates change drastically in a short time period (a half a percentage point or more within a week is usually considered drastic) most lenders will allow you an opportunity to take advantage of those rates. It is however at the lenders courtesy to do so. When do rates change? Rates can change every day, and sometimes more than once in one day. There are also some days or even a period of days that rates may not change at all. Mortgage interest rates are a product of supply and demand. They are not controlled by the Federal Reserve Interest Rate that you hear so often in the news (think Alan Greenspan). Many factors determine the interest rates that your banker quotes you. Many economic professionals have a tough time predicting interest rate patterns. This is because interest rates, like stock prices, have many different economic factors that affect their value to investors who buy mortgages. So don’t be surprised if your mortgage lender quotes you slightly different interest rate in the afternoon than he did in the morning.
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