Mortgage Points

Mortgage Points

rp_No-Money-Down-Home-Loans-300x228.jpgA mortgage point equals one percent of the total mortgage amount. To make it simple it’s a single % point of the amount you’re trying to borrow. If you ask the bank for 150,000 dollars, then 1% of this sum is $1500. This is one mortgage point value for you on this specific loan.

When to use mortgage points

If you get the mortgage interest rate from the lender and find out that the monthly payments are higher than you think you can handle, then you can offer the bank or lender to pay one mortgage point up front. If they agree, the $1500 will be payed with the other mortgage costs (loan origination fees, insurance fees) at the beginning, and the mortgage interest rate will be slightly lower.

This is a simple refinancing trick to lower the interest rates on your new mortgage. It is important that you check with a mortgage broker, that paying these mortgage points up front will actually save you money.

It makes sense to use mortgage points (or mortgage discount points) when financially it is worth it, and whether you have the cash on hand to pay it upfront. You as a smart buyer should do the calculation when paying mortgage points saves you more money than the alternative of paying a higher interest rate.

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Click here to return to the mortgage terms glossary .

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