Laura had seen it all. As a seasoned real estate agent in New York City, she knew that a successful real estate transaction wasn’t just about finding the right property; it was also about understanding the complexities of mortgage loans.
And one of the most misunderstood aspects of these loans?
Points.
It all started with a couple, Jamie and Mark, who were excited about buying their first home, and were now closing in on the final steps. As they reviewed their closing estimate , their excitement was sobered by the weight of the closing cost. They have seen the numbers several times during the process, however – not it was real they were about to spend their money they have saved for so long. It was time to write checks.
They scoured their closing estimate as if they were seeing it for the first time. They reviewed the section that mentioned “points.” What did that mean again? – and why was it costing them so much?
Jamie turned to Laura for reassurance.
“Laura, are these points necessary? Why are we paying more money up front? Are you sure the lender isn’t just looking to squeeze more money out of us? Should we be worried?”
Laura had heard this question many times before, and she knew that answering it required more than a simple “yes” or “no.” or “call your loan officer.” She saw this as an opportunity to reiterate how they were skillfully using ‘points’ to their advantage.
Breaking Down Points
Laura reminded Jamie and Mark that paying up front points to a lender was a smart way to lower the interest rate on the 30 year loan they were taking out. She reiterated that by paying the additional 1% (the ‘point’) up front they would be saving enough on their monthly mortgage to cover the additional cost within 24 months.
For the remaining 28 years of their loan, they would be paying less than someone who opted to pay no points for the same loan.
She jogged their memory to the conference call which they all participated in with their loan officer. On their $500,000 loan, one point would cost $5,000. However they would be saving $250 monthly compared to if they opted not to.
“That’s a savings of $3000 annually. You’ll pay yourself back in less than 2 years then it’s all profit after that.”
In the moment, Laura was also glad to be partnering with her Channel Mortgage team – who made it a point to be sure she as the realtor understood exactly what was happening on her deals. Laura smiled privately at the pun.
“Think long-term,” Laura continued. “You’re getting up front savings from the start. Unlike folks who choose to refinance when rates get lower You’ve taken control of your destiny.”
When Points Make Sense
The key, Laura explained, is to understand when points made sense. If you were planning to sell or refinance within a few years, paying points might not be worth it.
However, as it is your plan to stay in this new condo for the long term, this investment in points is certainly to your benefit. Remember how your loan officer explained it to us– this is a smart thing to do in any rate environment. When rates are relatively low, paying points could be an excellent way to lock in an even lower rate. When rates are high – paying points is an excellent way to take the edge off the monthly payments.
Jamie and Mark found comfort in Laura’s words. This was indeed the exact explanation they received from their loan officer when they decided to buy the points in the first place. They were just all nerves at this point and just needed some reassurance that they were doing the right thing. Laura did that for them.
“You should be a loan officer!” they blurted out in concert!
“ … or just work with really good ones,” Laura responded.
Laura knew that her role as a real estate agent wasn’t just about finding properties— nor was it about doing her loan officer’s job. It was about having the ability to guide her clients through the complex emotional and financial decisions that come with buying a house.
Educating Clients About Points
Laura’s expertise in the topic of points became one of her most valuable assets. That expertise she developed by developing a strategic relationship with her loan officer referral partner. This strategic relationship allowed her to start incorporating discussions about points into her initial meetings with clients.
Because she developed a firm understanding of this basic mortgage concept, she is able to quickly handle misconceptions about points. Her clients no longer leave her thinking that points were just another fee to avoid buying, a tool her clients can use to help their purchase transactions move more smoothly.
By clarifying the true nature of points, she helped her clients make more informed decisions about their mortgages which ultimately leads to better decisions on the home they buy.
In the end, Laura became known as an agent who could not only find the right property but also navigate the complex world of mortgage loans with ease. By taking the time to explain points and their benefits, Laura ensured her clients were well-informed and confident in their decisions.
A Smart Approach to Mortgage Points
Laura’s approach of empowering her clients with knowledge has led to long-lasting relationships with her clients and their friend circles.