A buyer enters into a purchase agreement with a seller conditioned on the buyer obtaining loan financing. The buyer contacts a lender who agrees to fund the loan. The buyer pays multiple points upfront to the lender. What does this do to the note rate on the mortgage?
The note rate will decrease and the principal amount will remain the same.
Points are a fee charged by a mortgage lender as prepaid interest. Payment of a point causes a reduction in the note rate on the mortgage. However, the payment of a point will have no effect on the principal balance of a mortgage. A point equals 1% of the amount of the mortgage.