What Are Mortgage Points?
Mortgage points exist in the mortgage industry, however, it seems like they are local to the United States. So what are these little guys and how do you deal with them?
Well, to start, mortgage points live in two forms, you can get them in origination or discount points. Either way, a point is equal to one percent of the whole mortgage. If you have a $200,000 home, your mortgage point would be $2000. For origination points, they benefit (compensate) the loan officers. Points are not standard for mortgages so it depends on the lender. You will not be dealing with mortgage points when using a mortgage broker or online mortgage broker. If you have discount points, then they are from prepaid interest; with these, each point tends to decrease the mortgage interest rate by a quarter percent. For many lenders, you can obtain between one and three discount points.
A big question for people is whether or not they should pay for points? This decision often rests on discount points. When trying to decide if you should pay for discount points, there are two big factors that come into consideration.
The first consideration is how long you plan on staying in the home; this is also how you can choose what kind of mortgage you want (ARM, fixed rate, etc). If you plan on staying in the home for an extended period of time, you can gain more of a benefit from the points.
The second consideration, and perhaps the bigger of the two, for this decision is to know if you have enough money to pay for the mortgage points or not. Obviously, if you do not have the money to pay for the mortgage points, then you should not go for them. It is not uncommon for people to not be able to afford the points after they are finished giving money for the down payment and any closing costs on the mortgage. If you have a half million dollar home, your mortgage points can be as much as $15k.
Are the points worth it? It can be debated if the money put towards the points is money well placed; some argue you can use that money for other things like stocks or something else that can generate a return. However, if the points help reduce your interest and thus make your mortgage more affordable, this is a bigger deal to many people.
Mortgage points exist in the mortgage industry, however, it seems like they are local to the United States. So what are these little guys and how do you deal with them?
Well, to start, mortgage points live in two forms, you can get them in origination or discount points. Either way, a point is equal to one percent of the whole mortgage. If you have a $200,000 home, your mortgage point would be $2000. For origination points, they benefit (compensate) the loan officers. Points are not standard for mortgages so it depends on the lender. You will not be dealing with mortgage points when using a mortgage broker or online mortgage broker. If you have discount points, then they are from prepaid interest; with these, each point tends to decrease the mortgage interest rate by a quarter percent. For many lenders, you can obtain between one and three discount points.
A big question for people is whether or not they should pay for points? This decision often rests on discount points. When trying to decide if you should pay for discount points, there are two big factors that come into consideration.
The first consideration is how long you plan on staying in the home; this is also how you can choose what kind of mortgage you want (ARM, fixed rate, etc). If you plan on staying in the home for an extended period of time, you can gain more of a benefit from the points.
The second consideration, and perhaps the bigger of the two, for this decision is to know if you have enough money to pay for the mortgage points or not. Obviously, if you do not have the money to pay for the mortgage points, then you should not go for them. It is not uncommon for people to not be able to afford the points after they are finished giving money for the down payment and any closing costs on the mortgage. If you have a half million dollar home, your mortgage points can be as much as $15k.
Are the points worth it? It can be debated if the money put towards the points is money well placed; some argue you can use that money for other things like stocks or something else that can generate a return. However, if the points help reduce your interest and thus make your mortgage more affordable, this is a bigger deal to many people.
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