What's the Point?
Homeownership | April 21, 2014
Your financial house is in order and you're ready to make your dream of homeownership a reality. Now it's time to get a mortgage. As you shop around, you'll see that many lenders offer a menu of mortgage rate-point combinations. So what are these so called "points" and is there a point in paying them?
A "point" equals one percent of the loan. Discount points are used by borrowers to buy down their mortgage interest rate. It's essentially an upfront interest payment to lock in a lower interest rate on your fixed-rate mortgage. So if you are borrowing $200,000, paying one discount point would mean paying $2,000 upfront at closing – but it may end up saving you more in interest payments over the life of the loan.
Deciding whether to pay more points for a lower interest rate or pay less/no points and pay a higher interest rate depends on your personal circumstances. They include factors like how long you expect to stay in the home and whether you can afford to make an upfront payment.
See how paying extra points might lower your rate.
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