What Are Points On A Mortgage Rate And How Do They Affect My Loan?
By Eric GoodwillPoints on a Mortgage Rate Defined
The bottom line is two fold, a point will cost you about 1% of the total loan you are obtaining. In return for this 1% you pay in cash at close of escrow, you will receive in exchange a ¼ discount off your mortgage rate. Let’s say you are self-employed and the best interest rate you can get is 6.5 but the going rate is 5.5. You found a $100,000 fixer-upper and you want to hit 6.0 as your rate. $2000 will buy you that reduction which will save you $1000’s of dollars after 3 plus years of paying that loan off.
Do Mortgage Points Affect My Loan Adversely?
No, it is simply an option available to most buyers. If your credit score was on the borderline, your employment status is in a grey area, or you are purchasing a second home, having this money saving option is useful. Check with your accountant for figures on how this saves on mortgage rates; it may be tax deductible for your purchase year.
What Other Discount Points Are There?
The origination fees charged by a mortgage broker often reach 1% of the total cost of the home purchased or refinanced. Some lenders might offer to discount those fees saving you money upfront in your closing costs. This is the reverse of saving cash in the long term off your interest paid. This is an immediate cash savings but check the figures as this may actually add a ¼ percent to your mortgage rates! This type of discount point is not tax deductible either.
Related posts:
- Should I Pay Points to Lower My Mortgage Interest Rate?
- What Are Discount Points On A Mortgage Loan?
- How Important Are Points To A Mortgage Rate?
- How Should Points Affect The Way I Shop For A Mortgage?
- Should I Pay Discount Points On My Mortgage?