Buying back points?

Hi everyone,
I'm a new poster here.
We are buying a house right now, and are doing it privately, not through a real estate agent or anything. We are buying it from my husband's friend's parents, and it never went on the market or anything. So, we just got a mortgage, and we are financing 100%. This is because we really can't afford the house for another 6-9 months, but it was just too good to pass up. In order to avoid PMI, we are getting a mortgage for 80% of the amount, and a home equity for the additional 20%. The interest rate on the second loan is very high (13%) but the mortgage guy, who we know, trust, and like very much, told us that the bank is going to buy back 4 points of that, so it's only going to be 9%. I do not understand this, and if anyone has any information or anyhting on this, I would really appreciate it, because it seems a little scary to me (heck, this whole process is pretty scary, so I shouldn't be surprised, right?) I would really appreciate any responses/advice. Thank you!!!
--Meaghan

Re: Buying back points?

I have never heard of that before. Beth1210's husband is a mortgage guy, she can probably ask him for you.

13% on a HELOC is insane.

I would ask him more questions - I work in banking and am trying to understand why a bank would buy back 4 points of that.

Good luck with the new house!

Re: Buying back points?

I think buying back points means that you (or in your case, the bank) is paying down the mortgage rate by putting more money upfront. 1 point is typically 1% of your mortage, so, for example, if you are taking out a $50,000 2nd mortgage loan, 1% would be $500. I think the way it works is that you pay the 5 points ($2500) upfront and they reduce your rate. So basically, since you are not putting anything down, your 2nd mortgage would probably be increased by $2500 or whatever upfront fee for the points would be. You would be increasing the amount of your loan but getting a lower rate.

Re: Buying back points?

Re: Buying back points?

we actually discussed the buying back points a few night ago-

we would buy back or buy down 2 percentage points off our own mortage- I don't know why the bank would buy them back- that doesn't make sense to me- the bank charges the points

have you talked to anyone else regarding this deal- or shopped around b/c 13% is not a good rate at all and I don't know what you are paying on the 80% mortgage- I am scared to ask

maybe the loan is subprime?

if you want to talk to my husband- he will be more then happy to help you-

Re: Buying back points?

I never heard of the bank buying points - usually the buyer buys the points. For every point, you pay 1% of the purchase price of the house. This money is paid upfront, at closing. If you don't have a lot of money to pay up front, this is not really a good option. I would shop around for another interest rate, we are getting around 8% for our second mortgage...
Is it a subprime rate as someone else suggested?

Re: Buying back points?

We are paying 6% on the first mortgage, which I thought was pretty good. The second one is high because, like I said, we really can't afford this house right now, because of credit card debt. And I misspoke... it's the mortgage broker that is buying down the points, as a "courtesy"... sorry, I have a lot going on right now!!! Does that clarify anything? I hope so, and would appreciate any additional input.
--Meaghan

PS- at the risk of sounding REALLY stupid, what is subprime??

Message edited 11/28/2006 12:33:37 PM.

Re: Buying back points?

13% is high even 9% is high!

we were friends with our mortgage broker and he told us no points till we got to the closing and our lawyer said Oh you do have points look

Re: Buying back points?

Re: Buying back points?

the brojer is paying the pionts- it's normally around $5K a point



or he isn't charging you points?

Re: Buying back points?

I suggest comparing the sale of the house and the amount of time you expect to stay in it vs. the $5K per point.

I looked into buying a point but my broker explained that it's not really worth it in my case. This is because it essentially will take 5 years to break even after paying for the point. After the first 5 years, that's when the savings would really start. I expect that in 5 years (give or take) I'll be selling the house I am in the process of buying so it didn't make sense for me.

Let me preface by saying that I am no means an expert, but I've never heard of a broker paying the points. IMO, that sounds a little shady.

Message edited 11/28/2006 1:48:52 PM.

Re: Buying back points?

I emailed your post to my husband- he has been in the business for over 5 years and this is his reply

"Total scamming at its worst"

he thinks the rate was on 9% to begin with on the helco- the 13%- doesn't make sense with a 6% rate on the first mortgage

I think you should talk to a few more people- go to your bank and ask them for there rate etc.

Re: Buying back points?

more insight from Jake-

Who is that any way if it is a friend tell her to stay away from what she is doing when you get a mortgage you can pay points to by the rate down on the 1st mortgage only not the second.

he is basicly setting her up for the closing when she see she is getting charged 4 pt being they are buying from family she can get a gift of equity for the second mortgage she only needs the 1st she doesn’t even have to get a 2nd she can do the 1st at 80 for the full sales price and say the other 20% was a gift no second mortgage and they still get the full purchase price.

Re: Buying back points?