A mortgage's headline rate is one number in a larger structure. Points buy down the rate at a cost. PMI adds a cost when the down payment is under 20%. Closing costs are 2–5% of the loan and are negotiable. The Scholar should read every line of the loan estimate before signing.
- 01Explain what a discount point is and when buying one is defensible.
- 02State the conditions under which PMI must be canceled.
- 03Read a Loan Estimate and identify negotiable line items.
Points
One point is 1% of the loan amount, paid at closing, to reduce the rate — typically by 0.25%. A point is defensible when the household will hold the loan long enough for the interest savings to exceed the upfront cost, typically 5+ years at prevailing spreads. Compute the breakeven; do not accept the lender's summary.
PMI
Private mortgage insurance is required on most conventional loans with down payments under 20%. It runs $30–$70 per $100,000 of loan per month. Federal law requires cancellation once the loan-to-value ratio reaches 78%, and the household can request cancellation at 80%. Track it and cancel.
Closing costs
2–5% of the loan amount. Origination fees, appraisal, title insurance, recording fees, prepaid interest, and prepaid taxes. Many are negotiable — origination and title especially — and shopping across lenders often saves $2,000–$5,000 on a $500,000 loan.
- Compute the breakeven on points; do not trust summaries.
- PMI cancels at 78% LTV by law, 80% by request.
- Closing costs are negotiable. Shop lenders in parallel.