These mortgage scenarios will almost always mean paying discount points

Discount point are nothing more than upfront head you pay to purchase a lower interest rate and subsequently a lower monthly payment. In some case the you may not have a choice to pay discount points. Following are those ways…

It is reasonable to assume when refinancing with a lower than 660 credit score on a conventional mortgage loan and pulling cash out of a primary residence, second home or rental property will automatically mean you paying some form of a discount. No matter what interest rate you are looking at. This is a byproduct of a market that prices and hedges pricing commensurate with the cost of risk a lower credit score borrower poses.

This also means for example on an FHA mortgage and you’re doing a cash out refinancing with credit scores 580-619 you are going to be paying some amount of money in a discount point. It is not unreasonable with a credit score under 600 you may be paying as much as 1-2 discount points of your desired loan amount.

The factors that cause the discount points to come in the play is:

  • Loan to value more than 70% with credit scores under 700 on conventional loans
  • Cash out refinances greater than 70% loan to value on conventional
  • Must have goal of specific rate
  • Investment property mortgages
  • FHA Mortgages purchasing or refinancing with scores 619 or lower
  • A must have interest rate on an FHA Mortgage

Talk to your lender when you’re being quoted points. Most lenders have options to toggle between so you can see the cost-benefit for a rate. The points system works by a sliding scale. The lower the interest rate, the more cost in the form of points there will be associated with that interest-rate. The higher the interest rate the less the costs are however the more expensive the loan is over the longer-term because the interest rate is higher you subsequently pay more interest of all over the total term of the loan. A sound mortgage loan scenario would be to estimate rate and cost vs how long you will need to borrow the money for. For example, you wouldn’t want to take a loan with extra fees if you plan to sell the home before you recoup those monies anyway.

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When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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