If mortgages aren’t confusing enough, sometimes we add mortgage points into the mix. Many people have never even heard of mortgage points. “Points” usually translate into some sort of benefit. Does it work that way in the mortgage world?
The answer to this question depends on your perspective. Today we’re going to eliminate the uncertainty surrounding mortgage points and give you the info you need to make an informed financial decision.
What Are Mortgage Points?
Mortgage points aren’t something you earn. They’re something you buy. For some, this knowledge automatically takes mortgage points off the table. What if we tell you that purchasing mortgage points might save money in the long run?
A mortgage point, also called a discount point, costs 1% of your home’s purchase price. For each one you buy, your interest rate will decrease by a specific percentage. Some think purchasing one mortgage point will lower their interest rate by an entire percentage point. While this would be amazing, this isn’t the case. Your discount is usually more like .25%, but it will vary by lender.
Crunching the Numbers
Some people question the benefit of mortgage points. You’ll pay interest eventually, so why do it ahead of time?
In some cases, purchasing mortgage points can lead to significant savings. Consider this:
Let’s pretend you take out a 30-year, fixed-rate mortgage for $200,000, and your interest rate is 5.125%. If you purchase 1.75 mortgage points upfront, you can reduce your interest rate to 4.75%.
If you decide to do this, you’ll pay $3,500 at closing to receive the lower interest rate. When your loan term is complete, you will have paid a total of $375,586. If you didn’t purchase points, your total cost through the duration of your loan would be $391,809. That’s a difference of over $16,000! Wouldn’t you rather have that in your pocket?
Contact Us Today!
Mortgage points don’t benefit everyone, but they are yet another option available to get a home loan that suits your needs. Contact MortgageDepot today to see if purchasing mortgage points will put you ahead in the real estate game!
Connect with one of our loan consultants for more information.
