Mortgage points can be a confusing topic, especially if you’re not familiar with them. And while they are hefty in value, the information surrounding them is often overwhelming. So, let’s start with the most basic point: What, exactly, are mortgage points, and why do I need to know about them?
Here’s a quick and simple guide to understanding the “what” and “why” of mortgage points:
When your lender, loan officer or real estate agent brings up mortgage points, it’s best to think of them as discount points. These are typically points, calculated to roughly 1% of your final mortgage, that can be applied to your mortgage interest to bring the overall interest rate down throughout the life of your mortgage loan.
Mortgage interest rates are typically calculated into your monthly mortgage payment. With mortgage points, you can bring your overall monthly payment down by paying into your interest rates ahead of time.
So, if you have a mortgage of $200,000 with interest rates already calculated in, paying $2,000 up front would grant you a mortgage point, being that it is 1% of your overall mortgage balance.
While it may seem easier to simply pay your monthly payments, and for some it’s the ideal choice, you may want to consider mortgage points if you’re searching within a market with slightly higher interest rates.
Likewise, if you’re planning to stay in your home long enough to watch your prepaid interest pay off in the long term, mortgage points may also be worth investing in.
Mortgage points can raise your overall closing costs by a significant amount. However, based on your unique circumstances, the bulk closing costs may be worth it if you’re interested in decreasing your monthly payments for the overall life of the loan.
Still have questions? Try connecting with your loan officer, lender or real estate agent to help guide you through the process.
Prior to her 20 years in Real Estate, Jacquelyn worked as a Marketing and Advertising Manager for Fortune 500 companies such as Sun Microsystems, Charles Schwab, Robert Half International, and Del Monte Foods. She has handled up to $80 Million Dollars in global marketing budgets and worked with not just local but also national and global teams. It was during these 7 years in corporate marketing that she successfully developed her marketing and negotiating skills which she now effectively utilizes in helping her clients with their home transactions. This has resulted in numerous Top Producer awards and designations in the Real Estate industry for being a Seller and Buyer advocate in over 2 decades.