This article provides an overview of what mortgage points are, how they work, and how to decide if they are right for you.
Mortgage points are fees that borrowers pay to reduce their interest rate. Each point is equivalent to 1% of the amount borrowed. For example, if you take out a $200,000 loan, each point will be worth $2,000. Mortgage points can either be paid up front or financed into the loan.
There are two types of mortgage points: discount points and origination points. Discount points are voluntary payments made at the closing of a loan to lower the interest rate. Each discount point typically lowers the interest rate by 0.25%. Origination points are fees charged by the lender for processing the loan. These fees are typically 1% of the loan amount.
When deciding whether to pay for mortgage points, it is important to consider how long you intend to stay in your home. Generally speaking, the longer you plan to stay in the home, the more beneficial it is to pay for mortgage points. This is because mortgage points help reduce your monthly payments and can ultimately save you money over the life of the loan.
If you’re considering purchasing mortgage points, it’s important to compare offers from multiple lenders. You should also make sure to read all of the fine print and understand the terms of the loan before making a commitment.
In summary, mortgage points are fees paid at the closing of a mortgage loan in order to reduce the interest rate. They come in two forms: discount points and origination points. In general, it may be beneficial to purchase mortgage points if you plan on staying in your home for a longer period of time, because the points can help reduce your monthly payments and will ultimately save you money in the long run. However, it’s important to compare offers from multiple lenders and understand the terms of the loan before committing.
This article was contributed on Dec 09, 2023
