"Do you want to pay points?" is the kind of mortgage question that leaves many people thinking "I dont even know what that is!" Heres a simple explanation. Points are pre-paid interest. You pay interest now (which is frequently tax-deductible) to lower your long-term rate. "One point" is 1% of the total loan amount. If your lender is willing, ask to compare a loan package with 0 points to options with 1, 2 or more so you can see the short-term and long-term effect. As an example and general guideline, on a 30-year mortgage, your interest rate will go down by about 1/8 (0.125) for each point paid -- 3% interest would drop to 2.75% with 2 points paid. If you plan to stay in the home for a while, points can reduce your monthly payment, while the up-front tax deduction might help with first-year finances. PRO TIP: In some market conditions, negotiating to have the seller pay points may be an option. Talk with your real estate professional and lender.

Mortgage loans usually take decades to pay off, so the interest rate has a big impact on the actual cost of the loan over that time. A small change in interest rate can make for a huge swing in loan costs or payments. Interest rates fluctuate all the time; see the video on Prime on this website to understand some of the underlying factors. While you are shopping for a mortgage, ask lenders about rate lock-in to give yourself options to handle the immediate market situation. Keep in mind that the full cost of borrowing is higher than the interest rate alone. Lenders will provide an Annual Percentage Rate — APR — in Loan Estimate and Closing Disclosure forms. These include fees, mortgage insurance and the cost of points so you can understand the actual yearly cost. Its easy to get emotional about interest rates in shopping a mortgage; market rates are publicized constantly. Focus on comparing each loan option in its entirety rather than interest rate alone.

The mortgage Loan Estimate includes two lists of services involved in the loan process: services you CANNOT shop, and services you CAN shop. See the other video in this series on "can shop." The Cannot Shop list covers fees and costs for outside parties (not the lender themselves). This list may include: Tax status research on the property Tax monitoring on property-tax payments Appraisal, which gives the lender a reliable value for the property Credit Reporting on the borrower. Flood Risk fees Flood Zone Monitoring Fees for these services in the Loan Estimate and in the final Loan Disclosure must match. There is ZERO tolerance for change on these items under lender compliance regulations.

This video explains the Loan Costs section of the mortgage Loan Estimate form. Key terms for which figures are provided include: Closing Costs: the set of fees involved in transferring title of the property to the buyer. Origination Charges: fees the lender collects for the mortgage process. These may include fees for handling the application itself, as well as "Origination Fees" — paid by the lender to a party that originates your loan, such as a mortgage broker. Points: essentially, a form of prepaid interest. Points are paid at time of the loan to lower the interest rate of the loan. Points may be tax deductible. Underwriting: fees charged by the lender to evaluate loan risks, based on the transaction and the borrowers financial attributes. The Loan Costs section is usually found on Page 2 of the Loan Estimate.

Lenders provide a Loan Estimate form within 3 business days of application for an approved loan. This form documents the terms, projected payment, costs and other details. These definitions may be helpful in interpretation: Loan Amount: total dollars borrowed, which is not the same as total borrowing cost. Interest Rate: cost you will pay each year to borrow, converted to a percentage rate. Not quite the same thing as: APR (Annual Percentage Rate): this includes interest rate, points (if used), mortgage broker fees, and other charges you pay to get the loan. Monthly Principal & Interest: payment amounts that go to reducing loan principal, and to paying interest, each month. (Mortgage insurance and escrow payments are not included here.) Projected Payments: approximate payment amounts over the years, with the major components such as principal, interest, mortgage insurance, escrow and assessment broken out. Estimated Closing Costs: specific costs to close, detailed. These are directly loan-related costs. Estimated Cash to Close: sum of estimate, plus any other known costs, to provide the total cash needed at loan close.

Lenders are required to store transaction records for a number of years. The period differs based on the documents. Escrow Cancellation: 2 years Partial Payment Policy Disclosures: 2 years Loan Estimates: 3 years after loan consummation Closing Disclosures: 5 years after loan consummation If the loan is sold — for example, to a different company for loan servicing — the original lender is only required to provide a copy of the Closing Disclosure to the new owner. Both companies must retain this information, for the remainder of the 5-year period. While digital record storage is common, it is not legally required. The guidelines set for lenders under the TRID regulations do not affect consumer behavior; consumers can keep disclosure records as long as they see fit. .

Regulations and disclosures for home mortgages and most other real-estate related loans do not apply to reverse mortgages, home-equity line of credit loans (HELOCs), or mobile home loans. Disclosures for these loan types require lenders to continue use of the Good Faith Estimate, Truth-In-Lending Disclosure and the HUD-1 form. In addition, the Loan Estimate and Closing Disclosure forms used for home mortgages are not required for housing assistance loans. These have separate regulations and forms; ask your lender for regulations, declarations and explanatory material.