When you buy a home, you’re most likely going to take out a mortgage loan to finance it. The rate on that loan will vary, based on your credit score, amount you put down, where you live, and what type of home you are buying (condo, single-family, resale or new home).
A “point” is equal to 1% of your loan amount. If your loan is $300,000, you would pay $3,000 to bring down the interest rate on your loan. It’s not one-for-one – paying one percent of your loan in points won’t bring your mortgage loan rate down 1%, but it will still have a positive effect on your loan rate, and therefore, your monthly payment.
Last week, the National Association of Realtors came out with a suggestion that the federal government pay borrowers’ points in order to bring down the interest rates on their home purchases.
It suggests using federal funds from the Troubled Asset Relief Program (TARP – $700 billion fund) to pay points at the individual homebuyer level.
So, a loan that would usually be at market rate (say, 5 – 5.5% right now) would drop to a predetermined rate; NAR suggests 4.5%.
The idea is, lowering borrowing costs would encourage more people to buy homes, reducing inventory, generating spending, and helping to repair the economy. Problem solved.
I’ve got an even better idea.
Your typical real estate agent makes 5-6% in commission on a home sale. (This amount is split, 50-50, between buyer’s agent and seller’s agent, and the agents’ companies get a big chunk of this, but ignore that for now).
What the National Association of Realtors should do is ask each of its one million members to kick in 1 percentage point from their commissions toward lower loan rates for every one of their clients.
Certainly, Realtors could make this decision on their own, but it would be much more successful if the suggestion came from the top down.
What do you think?