Points Are a No Brainer

Or at least I thought so. Am I missing something? Why would anyone pay points on their mortgage?

A couple days ago, a friend asked me to fax some papers for her. She is divorced and finally refinancing into a mortgage of her own. The house is hers and this is only right. She has been making the payments since the divorce alone.

These pages were to lock in a rate. Typical, I think this is standard for most of us. She asked me to take a peek and make sure everything was up to snuff. I didn't like it, I hate looking into friends stuff. I always feel like I'm invading a privacy.

But of course I peeked - she asked.

Two numbers jumped out at me the rate and the points. I know for a fact her credit is awesome - do to other discussions and prior interactions. I'm not 100% on the score, but I would guess high 6's to mid-7's.

While she was at my side, I asked if we could quickly jump online and check some interest rates.

She is refinancing $170k for 30 years. Her current mortgage is a variable and this is a good move for her. She would not be able to manage a 15 year mortgage with her current financial position.

The rate on the documents is 6.25%. I was thinking a bit high and a quick jump on to the local bank sites says it was close, but could be better. The rates locally are 6% for a 30 year fixed, with a 680 credit score.

Then I see that they are charging her 1/2 point at closing. Why? She says they are "giving her a rate reduction of .125%" for this one time fee.

I explained to her, because I know her intentions are to be moved into a smaller more affordable home in the next year or so - that this was not a good deal. Of course, I would never pay points - under any circumstances.

I showed her on paper that she will be paying $850 on closing - increasing her costs.

She said the mortgage guy, says she will save $30 a month with this.

I don't think so - I've never seen someone recover points in under 2 years. Has anyone else? Besides, his rates are higher, then other banks in the area - even if only by .125%

Anyway, when I left her I gave her some questions to ask. Okay, I pretty much asked her to question every line on her closing doc's. This refi is going to cost her thousands. Which is strange to me too. I think the most I have ever paid was between $1k and $1.5k.

Well, she did call him. And I think he confused her. When she told me the story, I saw her frustration. She said "I don't care - whatever, as long as it is done."

Oh my, I can't believe the words. She is so being ripped off.