The need to know mortgage points and how do they work
A mortgage point is one percent of the entire loan amount; for example, one point on a $100,000 loan would cost $1,000.
Mortgage points are effectively prepaid interest that you can pay in advance in return for a reduced interest rate and monthly payments (a procedure known as “buying down” your interest rate).
In some situations, a lender will provide you the option of paying points in addition to your. Your will be decreased and your monthly payments will be reduced in return for each point you pay at closing.
Points are typically purchased to reduce the interest rate on a loan. Buying points for only gives a reduction on the loan’s first set time and is not commonly done.
Take note of the figures.
Because you’re paying more in the beginning, the lower interest rate will only save you money in the long run. The longer you expect to live in your new house, the more likely it is that you will reach the “break-even” point, where the interest you save pays for your original cash spend. Paying points may not benefit you if you have a shorter-term goal, limited funds, or would profit more from a larger.
Your mortgage loan officer can advise you on whether paying points is a viable option for you.