In short, a lender cannot make you pay discount points. Paying discount points is completely optional for the borrower and if you decide to pay them then your mortgage rate should be lower. A lender should never require you to pay discount points but if you choose to pay discount points and your interest rate does not go down this also raises a significant issue.
It is important to highlight that there are different types of points when you get a mortgage. Sometimes lenders charge origination points to process your mortgage but paying this fee is not optional and does not lower your rate.
You can attempt to negotiate lower origination points or work with a lender that does not charge them but ultimately the lender decides what fees they want to charge to process your loan. It is up to you to decide if you want to work with that lender.
So returning to you original question, lenders cannot force you to pay discount points but you should confirm that the points you are being asked to pay are indeed discount points (which would lower your interest rate) and not origination points, which are processing fees charged by the lender. All of these fees should be disclosed by the lender upfront, before you submit your mortgage application.
Review Should You Pay Discount Points?
If you have questions about mortgage points or any other fees you are being charged, you should review the Loan Estimate document that the lender provided at the beginning of the mortgage process. This documents outlines your estimated loan terms, including all mortgage closing costs such as discount points and origination fees.
If you are near the end of the process, you can compare the Loan Estimate to the Closing Disclosure document, which outlines your final, actual mortgage terms. Lenders are required to provide the Closing Disclosure at least three business days before your loan closes.
Comparing these two documents enables you to understand how your closing costs have changed and if any additional fees have been added to your loan. The lender is responsible for honoring the mortgage terms they committed to providing you when you selected them at the start of the process.
Review How to Compare a Closing Disclosure to a Loan Estimate
At this point, we want to emphasize that you should not sign loan documents until you are absolutely comfortable with your loan terms including your interest rate, closing costs and any points. If you find an issue with your loan documents or have a question about a cost item, your first step is to contact your lender. Hopefully a quick conversation can clear-up any discrepancy.
If you are not satisfied with the lender’s explanation and cannot resolve the matter, you should cancel, or rescind, your loan. For a home purchase loan, you can cancel your mortgage anytime before you sign your loan documents and work with a different lender.
For a refinance, you can rescind your mortgage up to three business days after you sign loan documents. But again, we recommend that you not sign loan documents unless you are totally comfortable with your mortgage terms.
Cancelling your loan may be challenging if you are close to closing, especially if you are buying a home. In this scenario, the property seller likely has to agree to extend the escrow period so you can work with a different lender to complete your mortgage.
If you are considering changing lenders make sure that the new lender can process your mortgage fast enough to meet your closing timetable. You do not want to delay your home purchase because you switched lenders, although changing lenders can save you thousands of dollars in closing costs.
If you are considering changing lenders, we recommend that you contact multiple lenders in the table below to understand if they offer superior mortgage terms and to determine if they can meet your closing timetable. Comparing lenders enables you to find the mortgage that is right for you.
If switching lenders is not feasible and you believe your current lender is acting in bad faith, you can contact your state attorney general or the Consumer Financial Protection Bureau (CFPB) to review the matter. Contacting a real estate attorney for legal advice is also another option to consider.
I also recommend letting your current lender know that you intend to file a complaint or speak with a lawyer as this may motivate them to find a solution to your issue.
“What are (discount) points and lender credits and how do they work?” CFPB. Consumer Financial Protection Bureau, August 3 2017. Web.« Return to Q&A Home About the author