Interest rate points? Help!!!?

Question

Ok i'm buying a house and getting assistance with my downpayment from a city program. The city program requires that I have a 6.25% interest mortgage. My lender told me that the rates today are not that, so I have to buy down my interest rate to get that 6.25%. She said this can cost me between $4k-$9k. This doesn't sound right to me. The mortgage loan is only $220k. Is she trying to scam me for more money? How does this point system work? I am ready to close escrow but we just ran into this problem.

Answer 1

.    Pay the points or cancel and go back to the city for guidance.  Don't stall and lose your earnest money.

Answer 2

When you pay "points," you pay interest in a lump sum upfront to get a lower rate on your fixed rate mortgage. Each point costs 1% of the mortgage amount. The more points you pay, the lower your mortgage rate.

The only way to clearly understand is to ask how much they are charging you for each point. If the current rate for your loan is 7.25%, then at her estimated $4k, each point costs $4k. I think she should be more specific then 4k-9k. She is saying it either costs X price per point, or double. That is stupid. Ask for them to tell you the exact amount.

The practice is a normal way to get your interest % down. Her quote however should be more exact. The national average is at 6.36% for a 30 year fixed right now. It sounds like you may be quoted a higher rate due to your credit score(?).  If not, and your score is high, try a couple other banks.

Check the provided link for more information on points.  Good luck to you.