What are points in relation to a Home Mortgage?
by Mortgage Rates on Tuesday, October 19th, 2010 | 3 Comments
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Points are form of interest. They are deducted from the mortgage proceeds.
“Points” are basically this: you put x amount of money towards x amount of them in trade for a lower interest rate on your mortgage. Depending on who you get your financing through, the actual number of points that you can “buy” are limited….ie: there is no way to plunk down enough money in trade for 0%.
Points are money you pay to get the loan, basically. 1 point is equal to 1% of the loan amount. So a $200,000 mortgage loan with 1% point origination fee = $2,000.
This is in addition to any other costs you have for the loan. Many lenders charge a 1% origination fee.
You can also pay “discount points” to lower the interest rate. For example, you can pay 1% discount fee and lower your interest rate, maybe .25% so that a 5% interest rate could be “bought down” to 4.75% with 1 origination point/1 discount point = $4,000 for a $200,000 mortgage loan.
It’s possible that you can get a decent interest rate without paying a discount point since there have been lowering of interest rates recently.