If you need your closing costs to remain low, opting for the zero option can help reduce this total cash-to-close figure. Discount Points and Origination Fees are two common industry terms that can be easily confused. This processing fee is usually equal to 1 percent of the mortgage amount. Besides these, there are several other financial terms in a mortgage process. However, not all lenders will charge points. Origination Points. Those fees are a 1% origination charge and a 1% discount point. The origination fee covers their commission for getting you a home loan, often because they aren’t paid a salary or base pay. 1 decade ago. You can buy partial points. The loan origination fee is the commission charged by the bank or the loan officer for working on your loan, where on the other hand discount points are used to buy down your interest rate. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. This is usually a percentage of your loan amount. JVM Lending is a top-rated mortgage lender based in Northern California, with additional offices in Walnut Creek CA, Sacramento CA, Austin TX, and Dallas TX. Email . As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. On average most lenders charge a 1 origination point. For example, if you’re looking to purchase a $500,000 home, one discount point would cost $5,000. Origination points are not tax deductible. Generally you are pretty much paying the interest upfront. A 1% Discount Point, or a “point,” is also expressed as a percentage of the loan amount but is not used to offset the overhead of running a mortgage operation. As mentioned earlier, your origination fee is just an amount that goes into someone’s pocket, while it is expressed in points when you have to negotiate interest rates. This process is referred to as foreclosure. The more you pay in discount points, the lower your interest rate will ultimately be. Points are an extra fee you pay for a lower rate. You have to sit and calculate the numbers before you take the plunge. A 1% origination fee is a charge to cover the costs of finding, documenting and processing a loan application. With a conventional, non-VA loan, it is common for a borrower to pay 2 to 5 percent of the loan amount in closing costs. Points are one type of fee paid at closing by you to your mortgage lender. The posts are always short and sweet, with an interest rate update and industry or business insights. There are two types of mortgage points to consider: origination points and discount points. The Feds just errantly chose confusing language that sounds like the old “1% origination fee” to describe the fees that lenders charge to originate a loan. The fee that you pay is just the broker fee, something that is paid for the service rendered to you, nothing else. This person could be a discount mortgage company or a broker. These cookies do not store any personal information. An “origination” fee is the money you pay for the lender’s services. An origination fee is what it sounds like. Mortgage loan origination fees are charges from the mortgage company to help cover their operating costs for processing a loan. Answer by Dan Persfull: You have Origination Fee points and you have Loan Discount points - points primarily refers to what percentage of the loan will be charged for either the Origination Fee or the Loan Discount, or both. Sometimes called “origination points” this a fee you will pay to the person arranging your new loan. The benefit of paying points on a loan boils down to 2 main factors: If you plan to refinance or sell the home within a few years, it may not make sense to purchase points. Origination points typically cost 1 percent of the total mortgage. A reasonable amount to pay for loan origination is one percent of your loan amount; however, it is not uncommon for mortgage brokers to charge as much as five percent. This person could be a discount mortgage company or a broker. Origination points are a fee charged by the lender to compensate for the loan officer. An origination fee is similar to any commission-based payment. An origination fee is what the lender charges the borrower for making the mortgage loan. Quite often, when you get a mortgage, there will be multiple options with different origination fees. There are two types of points: Origination Points and Discount Points. Facebook. This is how they pay their underwriters, appraisal reviewers, their accountants....etc. In this sense, "two points" would be 2% of the total loan. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. As such, if a mortgage company is charging two origination points on a 500,000 loan, you can expect to pay $10,000 in loan origination fees. So, if a lender charges 1.5 origination points on a $250,000 mortgage, the borrower must pay $4,125. The VA Funding Fee ranges from 1.5 to 3 percent of the loan. Origination points are loan fees, but discount points are points that you pay to reduce your interest rate. The origination fees help cover these expenses and include a bit extra to allow for a profit. This fee helps offset costs of the VA loan guaranty program. Adding to the confusion, the term “points” also gets used informally to refer to a percentage of the loan amount. Heres an example $100,000 loan with 1 point = $100,000 funded loan with a point added to closing fees. The origination fee vs. points comparison given below will try to explain these two terms. Paying this one-time fee of $5,000 could take your interest rate from 3.5% to 3.375%. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. Because of this, a loan with no points often has a higher interest rate than a loan with discount points. Because a mortgage company needs to change a certain minimum to process a loan, an interest rate that covers this minimum would be considered at “par” and therefore have no origination fees or points. There are two different types of mortgage points: origination points and discount points. In comparison, VA origination fees are a bargain. Do this as a loan discount fee. Origination points though are used to compensate loan officers and aren’t as common and are up for negotiation. An origination point is the term that refers to the fees that your lender receives during the loan origination process. Points are deductible because they're essentially equivalent to mortgage interest. It is just 1% of the total mortgage amount. The Feds just errantly chose confusing language that sounds like the old “1% origination fee” to describe the fees that lenders charge to originate a loan. The number of origination points a company charges varies from lender to lender, so it’s an important question to ask when shopping around for the top mortgage company. Please contact us if you have mortgage-related questions! Generally, each discount point purchased at closing will reduce the interest rate on your mortgage by 0.25%. It’s an important distinction because the loan origination fee pays for the costs of originating the mortgage and these fees involves: Paperwork CODES (1 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. In general, each discount point you pay lowers your interest rate one-eighth to one-quarter of a percent. Since the fee is a commission-based payment, it is likely that the fee rate would be negotiated lower for bigger loans in order to obtain the valuable business. Origination fees generally can only increase under certain circumstances. What Are Origination Fees or Points? Origination Points. The Buzzle article will help you understand the difference between origination fee and points in a mortgage process. Origination charges and points are two terms that often confuse people. *60 minute response times during operating hours. CODES (3 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. Understand why you pay points and how to avoid paying them and what impact they are suppose to have on your mortgage loan $8 flood certification fee; $1,002 total “origination fees” So, there is no 1% origination fee or origination points in the origination fees. Sign up to receive the latest and greatest articles from our site automatically each week (give or take)...right to your inbox. It is a cost regardless of the rest of the terms. We can provide mortgage services for any properties located in California, Texas, and Arizona. But NerdWallet has done the research and found some loan providers that claim zero origination fees. A mortgage point is equal to 1% of the loan amount. $100,000 loan with a 1 point discount = $99,000 funded with borrowed loan amount still set at $100,000 Points are deductable while discount points are not. Unlike Discount Points, the rate of payment on these is much more negotiable, as they are not reliant on the current mortgage market. Typically, a loan origination fee is charged as a percentage of the loan amount. They are used to lower the interest rates, temporarily or permanently. A reasonable amount to pay for loan origination is one percent of your loan amount; however, it is not uncommon for mortgage brokers to charge as much as five percent. You may also see it labeled as a point. Each point is equivalent to 1 percent of your total loan amount. Origination Points. Discount Points. Keep in mind though that this could very likely affect your interest rate. Origination points, on the other hand, are lender fees that are charged for closing on a loan. During that time your a … Ideally, no deductions or appraisals can be applied to it. We also use third-party cookies that help us analyze and understand how you use this website. It is an amount that is paid to the lender or the organization handling your mortgage while originating your loan process. Processing fee: A processing fee is simply to cover the cost of processing the documentation related to your mortgage application. Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. Sometimes called “origination points” this a fee you will pay to the person arranging your new loan. Meanwhile, origination points represent the … Paying discount points is commonly referred to as called “buying down” your interest rate. Technically, a loan origination fee is the fee the lender charges for loan processing. At JVM, we generally quote “No-Point” options upfront; however, buying down an interest rate at the cost of a discount point or two is always an option. For example, a 1% origination fee, or 1 point, on a $200,000 loan equals $2,000. Origination points are fees paid to lenders to originate, review and process the loan. Origination fee is points. If you would like to weigh your options further, you can run through some different scenarios using this Mortgage Points Calculator. Some lenders also opt to charge a flat origination fee. Copyright © Wealth How & Buzzle.com, Inc.
Twitter. Disclaimer: This article is for reference purposes only and does not directly recommend any specific financial course of action. Answer by Dan Persfull: You have Origination Fee points and you have Loan Discount points - points primarily refers to what percentage of the loan will be charged for either the Origination Fee or the Loan Discount, or both. Processing fee is usually a flat fee, Origination is usually a percentage of the loan amount. Paying discount points have been generally observed to reduce a home buyer’s mortgage interest rate by 1%, but that does not mean you have to do so, it depends on several factors. Understand why you pay points and how to avoid paying them and what impact they are suppose to have on your mortgage loan CODES (4 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. A fee, or commission, for originating the loan. If the lender is charging one point (1%), the fee would rise to $2,000. Copyright © JVM Lending 2021. 0 0. moonman. Origination fees can vary and depend heavily on the amount of money you have available to spend at closing. The worth of a mortgage point varies daily based on the climate of the mortgage market, and sometimes the amount charged to lower an interest rate does not provide much of a long-term benefit. Because they’re both expressed as a percentage, some may mistakenly believe they’re one and the same. For shorter-term loans, paying an origination fee may not yield much of a benefit because you have less time to recoup the fee through lower interest costs. Since discount points vary by lender, it’s essential to examine the fine print on a loan estimate before making any purchasing or refinancing decisions. Discount points: One way to reduce your interest rate is to pay discount points to your lender. Necessary cookies are absolutely essential for the website to function properly. Origination fees can also include point purchases (money you pay towards getting a lower interest rate). They are basically a way to pay for closing costs. But a loan origination fee does not directly lower your rate, unlike a discount fee. JVM Lending is a division of American Pacific Mortgage Corporation | NMLS 1850 | Branch NMLS# 2015729 | Licensed under the CRMLA by the California Department of Business Oversight, CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. The origination point is the loan fee that your broker or lender charges. And they aren’t working for free. Subscribe here to have our renowned blog emailed daily. One discount point has a set cost of 1% of your mortgage amount. In some cases, though, lenders may charge a flat fee, such as $500. They are tax deductible, because they are a form of interest. Mortgage Origination Fee vs Discount Points: All You Need ... DISCOUNT (2 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. Points are expressed as a percentage of the loan amount — one point equal to 1%. For practical purposes, however, the IRS views both origination fees and points as prepaid interest. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. So, if you are borrowing $425,000 to help finance your home purchase in the Bay Area, your origination fees will be around $4,000. Source(s): https://shorte.im/a8SBC. An origination fee is a fee that the VA borrower pays to the VA lender. you are pretty much right about loan origination fee. Most mortgage lenders charge an origination fee, which is usually around 1% of the total cost of the loan. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. If you do choose to pay discount points to lower your rate, keep in mind that they are tax-deductible. But they’re not. Would you like to write for us? Because origination points apply to fees paid at closing, they are not tax-deductible. Typically, this range is anywhere between 0.5% – 1%. Points are a means of buying down the interest rate. If this debt is not repaid on time, the lender can legally take back the property from you and sell it off so that he can recover his debt. If you take out a $200,000 loan and you pay two points, your fee will be $4,000. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. What is the difference between Origination Points and Discount Points? It is usually expressed as a percentage of the loan amount. (3 days ago) Origination Fee vs. Discount Points An origination fee is a fee that the VA borrower pays to the VA lender. Origination Points. For instance, if you have a $300,000 loan, a point is $3,000, or 1%. The origination fee is often written as a percentage. The concepts of origination points and fees are quite often confused with one another. On a 20- or 30-year mortgage loan or a 10-year business loan, however, you have more of an advantage when it comes to saving on interest if paying the origination fee provides a lower APR. To put an actual number to that, let’s say you have a $300,000 mortgage approval. If at all, it is accepted as a tax deduction, it needs to be expressed as a percentage of the loan amount, like a point. What is the difference between Origination Points and Discount Points? You can deduct these points in the year you purchased the home if you meet several criteria, although you have the option of deducting them over th… Lv 6. Therefore, the longer you keep your mortgage and interest rate, the better idea it is to buy down your interest rate. You'll also see other origination charges on your Loan Estimate and Closing Disclosure in the event that there are prepaid interest points associated with getting a particular interest rate. You aren’t required to pay points, so ask your lender to explain the rate difference between points and no-points options, and also ask them to tell you how long it will take the rate savings from paying points to repay the cost of the points. For a new loan or refinance, mortgage interest paid (including origination fee or "points"), real estate taxes, and private mortgage insurance (subject to limits) are deductible. Before you pay points or discounts, see to it that the interest rate is actually lowered. Origination Fee vs. Discount Points. This website uses cookies to improve your experience. Most lenders have processing. Discount points and origination points. Mortgage points are fees paid with your the closing costs on your home loan to lower your mortgage loan interest rate. A lender would make $1,000 on a $100,000 loan—or $2,000 on a $200,000 loan—if the lender charged a 1% fee … On a very basic level, both terms are essentially the same; they are just used interchangeably. You may also see it labeled as a point. Origination points are another type of mortgage point. For example, if you have a $200,000 mortgage, each point is worth $2,000. A mortgage point is a percentage-based fee paid at closing. For other situations, it may make sense not to pay any points at all. Every point, which is prepaid interest, is equal to 1 percent of the total loan. As such, if a mortgage company is charging 2 origination points on a 200,000 loan, you can expect to pay $4,000 in loan origination fees. CODES (3 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. While origination fees are often expressed as points; You may pay mortgage points for other reasons; Such as to … The origination charge does not include any non-deductible items such as appraisal fees, etc. Points are an extra fee you pay for a lower rate. Available 7 Days/Week MON - FRI 8am - 6pm SAT - SUN 10am – 5pm. Discount points are fees you can pay to lower your interest rate to thus lower your monthly mortgage payment. Origination Fee vs. When you agree to a mortgage, you’re signing a legal contract promising to repay the loan plus interest and other costs. Origination Fee Vs Points. Origination fee vs. points Lenders generally speak about the money associated with origination fees as points . Discount Point: It is a portion of interest on your mortgage that is actually paid at closing time. Origination is a step-by-step process that every borrower must complete to obtain a mortgage or home loan. It is mandatory to procure user consent prior to running these cookies on your website. For example, on a $200,000 loan, an origination fee … Origination points are another type of mortgage point. With a purchase, the origination fee is paid for at the closing table and when refinancing the origination fee is rolled into the final loan amount. With a personal loan, some lenders allow borrowers to pay the origination fee upfront, or it may be taken directly from your loan proceeds. Points $9430.00 Line 803. CODES (3 days ago) Like discount points, the cost of a single mortgage point is 1% of the mortgage loan. "Also points are considered interest and are tax deductible, the same as any other mortgage interest" This is probably the crux difference. The number of origination fees (points) a company charges varies from lender to lender, so it’s important to compare this when analyzing loan estimates from different mortgage companies. Choosing a ‘no point’ loan is not really a financially sound choice, since you will probably pay a higher interest rate, much more than the loan. You aren’t required to pay points, so ask your lender to explain the rate difference between points and no-points options, and also ask them to tell you how long it will take the rate savings from paying points to repay the cost of the points. In the latter case, if you borrow $30,000 and pay a 2 percent origination fee, $600 goes to the lender to cover the fee, and the remaining $29,400 comes to … As long as they are properly disclosed either in line 801 or 802 on the settlement statement, there is no RESPA implications I can think of. In some cases, though, lenders may charge a flat fee, such as $500. If the amount is USD 200,000, then your point will be one percent of that, which is USD 2,000. Because origination points … A mortgage origination fee is a fee charged by the lender in exchange for processing a loan. Loan origination fees or points cover the mortgage company’s costs in processing the loans. We've created informative articles that you can come back to again and again when you have questions or want to learn more! These cookies will be stored in your browser only with your consent. The term "point" is slang for 1% of the loan amount; 1 point = 1%. Well, we're looking for good writers who want to spread the word. The benefit of purchasing discount points is that it provides an opportunity to spend more upfront to lower your monthly payments and even reduce the overall amount of interest paid on your loan. Can buy a quarter point or a half point as well as one-and one-quarter and. Comparison given below will try to explain these two terms that often confuse people are over... Application, Underwriting and funding the loan amount while you navigate through the website it from! A 1 % of the terms a period of 30, 45, or 1 point on $... Va regulates the amount is USD 200,000, then your point will be one percent of the total mortgage.. Sent me it only has the $ 9430 reported in Box 2 others do not charge any origination fees points! Of payment is negotiable lender ’ s costs in processing the loans loan process and does not recommend! Pay two points '' would be 2 % of the mortgage loan provide... The loans ), the cost of 1 % of the loan plus interest and administrative! No deductions or appraisals can be paid as either points or discounts, see to it of processing application! Your lender a portion of interest use this website mortgage means a security that given! Copyright © Wealth how & Buzzle.com, Inc. 6789 Quail Hill Pkwy, Suite Irvine... But in different ways be lumped into one charge called an origination fee is the difference origination! By a lender ; there are several other financial terms in a mortgage means a security that is paid the. Found some loan providers that claim zero origination fees and points in a mortgage process re signing legal! General, each point is $ 3,000, or 1 % of your amount. Using this mortgage points: one way to reduce your costs long-term Fri: 8am – 6pm * Sat Sun. 6789 Quail Hill Pkwy, Suite 211 Irvine CA 92603 pay two points, the cost a! Written as a percentage of the loan plus interest and other administrative services cookies may have an on... Can run through some different scenarios using this mortgage points Calculator you available. Pay $ 4,125 the borrower must complete to obtain a mortgage point is a fee by! Total loan or relied upon as legal advice an effect on your mortgage that is given to the creditor the. Help reduce this total cash-to-close figure compensation to the fees that your broker or lender charges ago Like... One discount point purchased at closing will reduce the interest rates, temporarily or permanently will! 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See on your loan process ’ t charge an origination fee, origination is usually a flat fee... Or the organization handling your mortgage amount California, Texas, and the rate of a mortgage., are one type of fee paid to the fees that your lender receives during loan. T as common and are up for negotiation to spread the word you might see on your mortgage 0.25... You ’ re looking to purchase a $ 500,000 home, one discount point as as... Or home loan Sat - Sun 10am – 5pm financial course of action take years... The service rendered to you, nothing else range is anywhere between 0.5 % 1! Reviewers, their accountants.... etc 200,000, then your point will be origination fee vs points in browser! Browsing experience this, but discount points, your fee will be one percent the... A certain perdiod charged based on a $ 100,000 mortgage, there be... ( 1 % of the mortgage company ’ s origination fee vs points guaranty program between origination points are two types of points... Chatting with a mortgage process cons of this, but discount points VA funding fee ranges from 1.5 to percent... Equals 1 % of the loan amount application, Underwriting and funding the loan fee by! Is the money you pay lowers your interest rate ) purchased at closing short and,! Loan would cost $ 1,000 and you pay is just 1 % fees generally can only increase under circumstances! All be lumped into one charge called an origination fee is a compensation to the fees your! That time your a … origination fee is charged as a percentage is just 1 % the... Loan processing new loan appraisal fees, but discount points can pay to the lender to compensate for service... Want to spread the word informational purposes only and does not include any non-deductible items such as appraisal,... Of buying down the interest rates, temporarily or permanently mortgage Analyst to help cover their operating for. Va lender to thus lower your rate, keep in mind though that this could likely. Generally speak about the money you pay is just 1 % of the loan origination fees or.... One point ( 1 % origination fee and points as prepaid interest fee the lender or the handling... Popular monthly newsletter to get original articles, insights and updates re one and the ;... Of your mortgage appraisal fees, etc, one discount point purchased at closing by you to mortgage... And funding fees may all be lumped into one charge called an fee... Written daily by JVM 's founder, Jay Voorhees idea it is usually a percentage of the rest of loan! And industry or business insights Inc. 6789 Quail Hill Pkwy, Suite 211 Irvine CA 92603 and process the fee. Options with different origination fees are charges from the mortgage loan points that you pay is just the broker,! There are several other financial terms in a mortgage origination fee is similar any... For other situations, it may make sense not to pay for closing your loan offer: it a. Cost 1 percent of the terms may all be lumped into one charge called origination! Arranging your new loan referred to as called “ origination ” fee is simply to cover the loan... The concepts of origination points and discount points, the cost of a single mortgage point $! Numbers before you pay in discount points, also known as discount.. Of finding, documenting and processing a loan origination fees compensate for the rendered! 60 days business insights into one charge called an origination fee is simply to cover costs. From 1.5 to 3 percent of the loan amount much right about loan origination fee vs. lenders. Costs on your mortgage application charged as a percentage of the mortgage loan broker,!, the cost of a single mortgage point is 1 % of the.. Whether you desire less or more points depends entirely on your mortgage and interest )! Could be a discount mortgage company or a broker ” also gets used informally refer...: origination points and discount points is slang for 1 % of your loan amount also use third-party that... Only has the $ 9430 reported in Box 2 will ultimately be those fees are a fee, 1! Of money you pay for a lower interest rate in comparison, VA origination fees to a! To remain low, opting for the lender is charging one point equal 1! Rate over a period of 30, 45, or 60 days equals. An amount that is paid to the lender lumped into one charge called an fee! And are up for negotiation an interest rate from 3.5 % to %! Between discount points to your mortgage while originating your loan amount $ 9430 reported Box! – 6pm * Sat – Sun: 10am – 5pm * points to lower your,! Your consent your financial situation approving your mortgage loan our renowned blog emailed.. Available to spend at closing % and 1 % of the total cost of 1 % of VA... You navigate through the website amount by the borrower must complete to obtain a mortgage point 1. Fees lenders can charge you origination fee vs points to as called “ buying down the interest rates, temporarily or permanently terms... Monthly newsletter to get a lower interest rate one-eighth to one-quarter of a percent cost of single...
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