Low interest rates, upfront cost, and points

[Keeya WangJones]

Hi, Can anyone explain how some lenders are offering low interest 3.5-4% but I need to pay for points or upfront costs? What does the points actually do? How does this method of lending affect a 30 year fixed? Cheers!

[Stephanie Medellin]

@Keeya WangJones  Each lender puts out a rate sheet every day based on the current market.  Each rate has a price which is quoted in points.  One point is equal to 1% of the loan amount.  The lower the rate, the higher the cost / points.   The higher the rate, the lower the cost / points.  

If you go high enough on the rate, the price reaches a level where the lender is actually giving YOU points as a credit.  You can use this credit to cover closing costs.  

If you want a low rate, you will not get that credit.  If you want the lowest rate possible, it will cost points.  You will also have to pay your other closing costs (title insurance, recording fees, etc) on top of those points.