Savvy borrowers know their PNPs

Being on wrong side of notch point can be costly

PNP, which stands for "pricing notch point," is a value of one of the factors used in pricing goods at which the price changes. In most lines of business, the factor used to price is the quantity purchased. For example, at the farm stand where I buy corn, the price is 70 cents an ear for the first three ears, 65 cents for the next three, and 60 cents for any ears beyond six. This merchant’s PNPs are three ears and six ears. These PNPs are pretty easy for consumers to understand, but the stakes are small.

In the mortgage market, PNPs are more complicated but the stakes are high. On a mortgage, the "price" includes the interest rate, mortgage insurance premium and points, any or all of which can change in response to changes in loan size, loan-to-value ratio (LTV) and credit score. Each of these has its own PNPs.