Mortgage points: What they are and how they can help

by David Fisher 06/19/2022

Mortgage points can be a confusing topic, especially if you’re not familiar with them. And while they are hefty in value, the information surrounding them is often overwhelming. So, let’s start with the most basic point: What, exactly, are mortgage points, and why do I need to know about them?

Here’s a quick and simple guide to understanding the “what” and “why” of mortgage points:

What are mortgage points?

When your lender, loan officer or real estate agent brings up mortgage points, it’s best to think of them as discount points. These are typically points, calculated to roughly 1% of your final mortgage, that can be applied to your mortgage interest to bring the overall interest rate down throughout the life of your mortgage loan.

How do mortgage points work?

Mortgage interest rates are typically calculated into your monthly mortgage payment. With mortgage points, you can bring your overall monthly payment down by paying into your interest rates ahead of time.

So, if you have a mortgage of $200,000 with interest rates already calculated in, paying $2,000 up front would grant you a mortgage point, being that it is 1% of your overall mortgage balance.

Why do I need to know about mortgage points?

While it may seem easier to simply pay your monthly payments, and for some it’s the ideal choice, you may want to consider mortgage points if you’re searching within a market with slightly higher interest rates.

Likewise, if you’re planning to stay in your home long enough to watch your prepaid interest pay off in the long term, mortgage points may also be worth investing in.

Mortgage points can raise your overall closing costs by a significant amount. However, based on your unique circumstances, the bulk closing costs may be worth it if you’re interested in decreasing your monthly payments for the overall life of the loan.

Still have questions? Try connecting with your loan officer, lender or real estate agent to help guide you through the process.

About the Author
Author

David Fisher

A home is never just a building, it's the center of our lives. I understand that buying or selling a home is an important decision that's about so much more than just the price tag, and I am fully committed to helping you achieve your real estate dreams, whatever they may be. Take advantage of my market expertise so you can stay informed about what's happening in your neighborhood of choice. Allow me to display your home to its best light locally, nationally, and internationally.
As a member of Re/Max Gold, my clients' real estate needs are my number one priority. My expertise, tools, and services carry the prestige of one of the largest and most respected globally known brands, and I'm honored to put them to work for you. Whether you're looking for your dream home or your next big investment, contact me today to request more information or schedule a consultation.