What are Points?
What are points?
A point is a percentage of the home loan amount, or 1-point = 1% of the loan amount, so one point on a $100,000 loan is $1,000. Points are considered pre-paid interest that are paid upfront to the lender to get mortgage financing under a lower interest rate than not paying points.
Also known as Discount points; are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Should I pay points to lower my interest rate?
Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the home loan's interest rate is a good way to lower your required monthly mortgage loan payment, and possibly increase the loan amount that you can afford to borrow because the payment will be lower than not paying points. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.
Can the seller pay the points cost?
Yes, the seller in most Conventional home loan programs can pay up to 3% of the sales price towards the buyers closing costs and points are part of the total closing costs.
There are additional programs to temporarily buy-down the interest rate that may be less costly that will reduce the interest rate to 2% below the NOTE rate for the first year, 1% below the NOTE rate for the second year and the loan will then stay at the NOTE rate for the 3rd and remaining years. Either the seller or buyer can pay for this interest rate buy-down and it is always a good idea to work with a highly trained mortgage professional who can calculate these options to help you decide which works best for your particular situation.
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.