Mortgage Discount Points Seller

Will the Nama mortgage work?

FIONA REDDAN

There aren’t enough cash buyers out there for all of Nama’s stock but is the agency’s plan to help buyers the best way to get the market moving?

GIVEN THE NUMBER of first-time buyers and families looking to trade up who are sitting on the sidelines, waiting for the property market to stabilise – or the banks to start lending again – a mortgage which protects against negative equity seems like a good idea. But how will the latest proposal from the National Asset Management Agency (Nama) work? Is it just another measure aimed at propping up a market which is in freefall, and should the Government really be intervening in the property market?

After all, it has intervened in the past with some pretty disastrous consequences for the entire country.

The negative equity dilemma has been talked about for some time, but last month, Brendan McDonagh, chief executive of Nama, gave a clear indication that the agency is working with both Bank of Ireland and AIB on delivering a product which would protect house purchasers from a future drop in house prices.

For McDonagh, one of the “key impediments” to the lack of activity in the property market is the fear that house prices will continue to fall further. Indeed the market is at a stalemate, with just €577 million lent out in the first quarter of this year – more than 50 per cent down on a similar period in 2010 and more than 93 per cent down on the peak in 2006.

April’s auction of properties in receivership was one of the few bursts of activity in the market. There was a huge level of interest in the first Allsop-Space property auction and those bidding on the 82 properties spilled on to the street in front of the Shelbourne Hotel at one point. A second auction takes place in the same venue on Thursday. However, it’s worth noting that an auction of distressed properties in Cork last month was a flop, with only two of the discounted lots sold under the hammer.

Fire sales apart, with so little activity, it is hard to gauge the true state of the property market, although indices such as that from the Central Statistics Office suggest that it is still declining. And, with interest rates set to rise, the employment market uncertain and the economy still in the doldrums, there is no reasonable expectation that prices will start to rise again in the future.

Against this background, it will be very difficult to get the market moving again. After all, it’s not the first time that new products have been launched in an effort to re-energise the property market. Remember Ray Grehan of Glenkerrin Homes’ interest-free loans at The Grange in Stillorgan? Or the rent-to-buy schemes that enabled prospective home buyers to rent their preferred property before committing to a purchase? And there have also been similar products to Nama’s proposal unleashed on the market.

What Are Mortgage Points? | Hall Financial

Mortgage points are certain costs or charges that have to be paid in order for a borrower to obtain a mortgage loan on a new home. There are two basic types of points.

Discount Mortgage Points

Discount points are funds that borrowers pay to get home loans at a lower rate. Essentially what borrowers are doing with discount points is pre-paying interest rather than paying it out over the life of the loan.

When you are dealing with discount points, each point is usuaully worth one percent of the loan and 1/2 of a percentage point. For instance, if you were taking out a mortgage loan on a $100,000 and you negotiated with the lender to pay two points, you would pay $2000 to get a 1% break on the interest rate. Most lenders will not allow you to buy more than four points, so buying points only allows you to reduce your mortgage rates by around two percent. Of course, if your mortgage rates are relatively low anyway, prepaying two percent of the interest on a new mortgage can save you a significant amount on your monthly payments. Because discount points represent interest, they are tax deductible if you itemize your taxes.

There are certain types of mortgages that do not allow the borrower to pay points. On FHA (government) loans and on VA loans, the borrower cannot pay discount points. The seller, however, may pay discount points. The buyer may stipulate that the seller must pay a certain number of discount points when he or she makes an offer on a new home.

Origination Mortgage Points

Origination points cover the cost of initiating home loans. Buyers should try to minimize paying these points upfront as much as possible, because they are not tax deductible and they drive up loan closing costs. Sometimes, a motivated seller will agree to pay all or some of the origination points. If the new mortgage buyer wants this, he or she should make this a condition when they make an offer on the home.

Lenders can sometimes be persuaded to roll the origination points into the loan itself so that the buyer can pay the points off slowly over a period of time. These kinds of deals almost always lead to higher mortgage rates. It’s important that buyers keep an eye not only on closing costs but also on whether or not the monthly mortgage payments will be affordable if origination points become a part of the loan.

Housing and society

The Secret of Mortgage Lending Success

Mastering Real Estate Appraisal

Real Estate and Taxes!, What Every Agent Should Know

Mortgage Loan Processing