Paying Points on a Mortgage

What are Points on a Mortgage Loan?

Mortgage points are fees paid on a loan to reduce the interest rate of your mortgage.  If you add an extra 1% to the fees on your loan your interest rate will be lower. Paying for points on a mortgage is essentially a trade of upfront money for a lower interest rate.

Why buy down your interest rate with  points?

Buying down your interest rate means that your monthly payment will be lower.  To determine whether this makes since to do simply divide the points dollar amount by how much money you save each month.  This will tell you how many months it will take to pay back the points amount.  Determine if you will be in the house that many months to start saving money.

No Point Loans

There are such things as no points and no fees loans.  Here are some reasons why someone would choose one of these options.

  1. No money for down payment and fees on a purchase. When you purchasing a new home and do not have the money for the down payment, a  mortgage with no closing costs can make up the difference of the down payment.
  2. If the estimated time you will be staying in the home is less than it takes to make up the money you spent on the points. Typically this can take anywhere from 3-5 years to recoup the difference.
  3. No equity in the house to pay closing cost when refinancing. No closing cost may allow you to complete the refinance, but your rate will be higher.

So ask your Loan officer about the possibilities of paying points and no fee loans.

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