View source for Talk:Discount points

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==article issues==
The issues brought up by the multiple tags were that the article is insufficiently referenced, has a "U.S.-centric" view, and not enough context for clarity to those with no knowledge of finacial matters. [[User:Beeblebrox|Beeblebrox]] ([[User talk:Beeblebrox|talk]]) 00:35, 10 October 2008 (UTC)

The external link http://mortgagepoints.com/mortgage_points_calculator.html, while functional, appears to have been corrupted by spammy keywords and links, for example: "download free decoder CCSulead photo express 2 parentcrack for frozenthrone patch 1.20walpaper..." [[User:Dpennock|Dpennock]] ([[User talk:Dpennock|talk]]) 11:55, 24 June 2009 (UTC)

== Ignores the "time-value" of money ==

This article uses simple "flat" math to compute the "break-even point", and consequently the break-even point found by these computations is too early. See [[Time-value_of_money]]: any money you pay today (the points) is inherently worth more than money you pay in the future.  <span style="font-size: smaller;" class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/72.208.30.55|72.208.30.55]] ([[User talk:72.208.30.55|talk]]) 22:49, 25 October 2008 (UTC)</span><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->
:I was about to make the same comment.  ''Now on the other hand, 360 months (30 years) - the 47.23 months is the upside, or 312.77 months. Should you keep this loan for 30 years until paid off, you saved $9,933.58 over the life of the loan by paying $1,500 in points (312.77 months x $31.76 monthly savings from lower rate).''  Although it's true that you would save just under $10K in nominal terms, that money would be worth considerably less than that in real terms.  [[User:Nik42|Nik42]] ([[User talk:Nik42|talk]]) 05:40, 17 February 2009 (UTC)


That's a horrible thought process. Yes the money would be worth less 30 years from now, but you aren't ACTUALLY paying the points -- if you finance them. In that case, looking at the net, you never PAY for the points, only receive monthly savings!  <span style="font-size: smaller;" class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/12.68.208.253|12.68.208.253]] ([[User talk:12.68.208.253|talk]]) 00:54, 24 February 2010 (UTC)</span><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->

To me, mortgage discount points are a bit of a red herring.  Why would a lender make such an offer?  It effectively increases his yield on the loan above the stated interest rate.  After all, if the same day he loans you $100,000.00, you give him $2000.00 (2 discount points) he is really loaning you $98,000.00 not $100,000.00.  Why not make an extra $2000.00 down payment on the principle amount?  That also decreases the monthly payment.  Furthermore, it immediately increases your equity in the property by $2000.  The chart below illustrates by an example.  The last column is the difference of the previous two columns.  The loan is for $100,000 over 15 years and the par interest rate is 6%.

 Principle Amount                $98,000    $100,000      $2000
 Interest Rate                        6%      5.685%     0.315%
 Monthly Payment                 $826.98     $826.98         $0
 Total Interest Paid (15_yrs)  $50856.40   $48856.40      $2000

The loan is effectively for $98000 when the borrower pays $2000 on a $100,000 mortgage.  The lender can claim the interest rate is 5.685% on $100,000 when the yield is 6%.  The difference is 0.315% or 0.158% per point.  Now the typical reduction in loan rate of 1/8% (0.125%) for every point purchased doesn’t seem like such a great deal.

Note that the additional $2000 total interest paid in the reduced principal amount example can be considered prepaid interest when the discount points are purchased.  One could argue a saving because the cost could be deducted from taxes in the current year.  However, the interest will be deductable away, but over the life of the loan.  I suppose a bird in hand is worth two in the bush, but I would be willing to bet that tax rates will increase over the next 15 years making those deductions more valuable in the future.  <span style="font-size: smaller;" class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/208.102.209.65|208.102.209.65]] ([[User talk:208.102.209.65|talk]]) 21:13, 12 June 2012 (UTC)</span><!-- Template:Unsigned IP --> <!--Autosigned by SineBot-->

== History is of interest here ==

The history of the "points" game is completely absent. [[User:Barefoot through the chollas|Barefoot through the chollas]] ([[User talk:Barefoot through the chollas|talk]]) 14:24, 19 August 2019 (UTC)
== Disputed ==

''The following comments were originally posted in the article by an editor at [[Special:Contributions/74.87.25.96|74.87.25.96]]; moved from the article to the talk page by [[User:Davnor|Davnor]] ([[User talk:Davnor|talk]]) 22:10, 3 March 2010 (UTC).''

The <s>above</s> dialogue [in the article] is a biased and inaccurate description of SRP (service release premium). This enire article needs to be re-written.  SRP represents the "servicing" value of a loan.  A lender may sell a loan servicing released and receive an SRP or servicing retained and not receive an SRP.  This transaction is in no way similar to the YSP (yield spread premium) or rebate that a broker can receive for "upselling" rate.  SRP is typically a fixed value based on state and loan amount.  YSP is the increase in price paid for a rate that is above PAR and whose variation is tied directly to the rate.  YSP stays constant over a period of time (typically 6 months to a year).  YSP varies constantly based on market price fluctuations. Brokers do not receive SRP because they are never the "owner" of the mortgage and thus do not have rights to the servicing.  As stated a lending institution does not always receive SRP.  If it choses to sell the mortgage, but service the loan (i.e. keep the servicing rights), a common practice with large lenders, then no SRP is realized.  The <s>above</s> dialogue [in the article] should be removed an replaced with an accurate representation of service release premium.

== Agree with Disputed ==

I have read the definition of service release premium on many internet sites and they all agree with the definition included in Wikipedia.  However, this definition is totally wrong.  The definition of a service release premium is the price a loan servicer is willing to pay for the discounted value of the future cash flows from the servicing fees the servicer will receive during the expected life of the mortgage loan being serviced.  When a lender sells a mortgage to a servicer, the servicer will pay this price to the lender because the servicer will receive future income flows from the servicing fee they charge the investors.  These fees and the price the servicer pays for this future income is not influenced at all by the fluctuations in the market rate of interest on the loans.  The servicing release premium may be the same for two mortgages with the same characteristics, but originated at totally different interest rates.  This premium (SRP) will be the same whether or not the lender offered the borrower a low rate of interest or a high rate of interest.  <small><span class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Cs170a|Cs170a]] ([[User talk:Cs170a|talk]] • [[Special:Contributions/Cs170a|contribs]]) 17:33, 7 March 2010 (UTC)</span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->

:Indented line This is not true. MSR is calculated based on the principal, since the principal left changes with the interest rate it does change with loans terms and resembles an interest only strip. [[Special:Contributions/207.159.80.180|207.159.80.180]] ([[User talk:207.159.80.180|talk]]) 20:10, 21 April 2011 (UTC)

:MSR? Do you even know what is being discussed here?  <span style="font-size: smaller;" class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/209.6.94.52|209.6.94.52]] ([[User talk:209.6.94.52|talk]]) 20:34, 21 April 2011 (UTC)</span><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->

== Not Exactly ==

It is not the case that SRP is not influenced by interest rates. Consider a simple example: a 30-year fixed mortgage originated at 6.5% has a certain servining value if the interest rate is around 6.5%, but a significantly LOWER value if the interest rate is below 5.75% or so. Why lower? Because the risk of early payoff significantly increases as the difference between the current interest rate on a loan and prevailing rates increase (when the prevailing interest rate is lower than the current interest rate). Put simply, when a borrower's interest rate is higher than the prevailing interest rate, borrowers refinance their mortgages. That refinance ends the income stream from servicing on the original loan. Also, SRP does vary based upon the term of the loan and on the type of mortgage loan. SRP is really nothing more than the discounted present value of the servicing revenue over time. Loan term, interest rate, and loan type will dramatically affect SRP values. It is most certainly not a fixed value.  <span style="font-size: smaller;" class="autosigned">—Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/68.53.40.80|68.53.40.80]] ([[User talk:68.53.40.80|talk]]) 03:50, 18 March 2010 (UTC)</span><!-- Template:UnsignedIP --> <!--Autosigned by SineBot-->