March 3rd, 2011 9:20 AM by Eric Fang
1 points is 1% of the loan amount.1 points can not buy 1% lower rate.
This 1 points is related to the investor pricing, or YSP(Yield Spread Premium), whichis the percent of the commission we get fromthe lender.
Usually because of the spread of the rates for fixedand ARM is different, 1 points can buy down 0.25%to 0.375% lower rates for fixed program; and it can buy down around 0.5% lower rate for ARM.
It does not work exactly that way, it still dependson how investor pays for each rate. But it's thegeneral idea for most common rates and programs.
That's why some buyers want to have ARMrate and willing to pay the closing cost nowadayssince they can get relatively more benefits (lower rates) than no cost loans.