Negative Points

Vincent and Jules are super excited: they’re finally ready to buy their first house together. One of the first things they need to decide on—other than where they want to live, obvi—is whether they want a positive point mortgage or a negative point mortgage. “Negative point,” Jules says instantly. “No doubt about it.” But why?

“Negative points,” which are also called “rebates,” basically do two things: they increase our interest rate, and they decrease our closing costs.

It works like this: if Vincent and Jules need a $200,000 loan, one negative point could increase their interest rate by 0.25% (so instead of a 4.1% interest rate, they’ll pay 4.35%), but they’ll also get one percent of the loan amount, or $2,000, back to apply toward closing costs. This is great when borrowers either don’t have enough cash on hand to pay for closing costs...or don’t plan on being in the home forever. Over time, a higher interest rate can lead us to pay a lot more money over the life of the loan. But if we’re not planning on having the loan forever—i.e., this is just Vincent and Jules’ starter home and they plan on upgrading in about ten years—then we won’t feel quite as big of an impact from that higher interest rate. And—bonus—the lower closing costs help our new homeowners keep more money in their pockets now.