Basis points sound confusing to the average consumer.
You're out shopping for a loan at a loan mortgage company in Houston, you're mind is focused on houses and monthly payments and the condition of the kitchen - and you're loan officer is talking about some foreign, mathematical, highly technical term known as "basis points."
So let's get right into an easy understanding of basis points and how it relates to Texas mortgage loans.
What Are Basis Points and How Are They Used?
Basis points, or bps, are a way for loan officers to measure small fluctuations in interest rates, by using a smaller function than a percentage. A basis point equals one hundredth of one percent.
This means that from an interest rate perspective, if your loan officer offered you a 7% APR (annual percentage rate) and then stated that it would drop by 25 basis points, that rate would decrease to 6.75%.
Or, let's say your interest rate is 5%, and then it goes up to 6%. In this case, you had a change of 100 basis points.
Want to get fancy when you ask your mortgage officer for a half a percentage lower interest? Just ask him for 50 basis points off. He'll get a chuckle out of that - and maybe even find you a better rate.
Does A Change In Basis Points Affect My Houston, Texas Mortgage Loan?
Just a small change in basis points can have a massive impact on the overall cost of a loan, particularly for longer-term loans.
A quick example:
Let's say you take out a 30-year mortgage for $300,000 at an interest rate of 4.75%. Your monthly mortgage payment would be approximately $1,514.67 and the total interest paid over the life of the loan would be approximately $215,564.
Now, let's say the interest rate decreases by 25 basis points to 4.50%. Your monthly mortgage payment would be approximately $1,483.22 and the total interest paid over the life of the loan would be approximately $206,939.
Just a 25 basis point decrease in interest rate means a monthly mortgage payment that is $31.45 lower, and a total interest savings of $8,625 over the life of the loan - almost $10K in savings!
Can A Mortgage Officer Get Me Lower Basis Points Off My Loan?
You can always push for a lower rate with your mortgage company - feel free to ask us, we have the ability to shop around for the best rates for you.
Here are some of the ways a mortgage company in Texas can get you basis points off your loan:
- Shopping around: A mortgage officer can shop around for the best mortgage rates from various lenders and negotiate with them to get the lowest rate possible. We do this every day!
- Offering a larger down payment: A larger down payment can lower the loan-to-value ratio and increase your creditworthiness, making you a more attractive borrower to the bank, so we can fight for a lower interest rate for you.
- Improving credit score: A higher credit score almost always means a lower interest rate. We can also work with you to improve your credit score by providing advice on how to pay off debt and handle credit responsibly.
- Point purchase: Some lenders allow you to buy points, which are a form of prepaid interest. By purchasing points, you can lower the interest rate on your loan. Texas United Mortgage can help with this.
- Adjustable-Rate Mortgage (ARM) vs Fixed Rate Mortgage: An Adjustable-rate mortgage typically has lower rates than fixed rate mortgage, but the rate can change over time depending on the market. In todays turbulent economy, an adjustable rate can sometimes be a good option.
Drop us a line to learn more about how to get the best rate today from one of our friendly loan officers - we'll be more than happy to help!