What Are Mortgage Points?

What the heck are these points on my estimate? Should I buy them?


8/20/20201 min read

You’ve probably heard about “points” along your mortgage journey. But what are they? They’re essentially prepaid interest purchased to lower your loan’s interest rate.

One point equals 1% of your total loan amount.
So, if your loan was $100,000, one point would equal $1,000.

Determine your break-even period.
Divide the cost of the points by how much you’ll save each month to get the number of months it will take to recoup your cost. If you plan to stay in your home beyond that time, it may be a good idea.

Points may be tax deductible.
You can deduct points the year you pay for them for purchase loans, and throughout the life of your loan for refinances. Lowering your real cost can shorten your break-even period.

Are there any risks?
Once you purchase points, the money is gone. If you sell or refinance before your break-even point, the difference equals a loss.

How else can I lower my monthly payment?
If you can make a larger down payment on your new home, your mortgage—and your mortgage payments—will be lower. Putting at least 20% down also means you won’t have to pay for private mortgage insurance.

Save your money—Cash reserves are sometimes more valuable than a slightly lower payment.

What’s the best action for me?
If you want a lower monthly house payment or a tax deduction, buying points can be a good way to get there. Let’s discuss your financial goals and how long you plan to stay in your home to find out if points are right for you.

Contact us today, and we’ll work together to build the best mortgage solution for you.

Mortgage Points Explained

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