Understanding Mortgage Points and Their Benefits
If you're shopping for a home or refinancing an existing home loan, you're most likely to come across mortgage points. Will your understanding of mortgage points affect your mortgage payment or home ownership?
It is crucial to note that there are fundamentally two types of Mortgage points. These are discount points and origination points. Discount points are another name for Mortgage points. Mortgage points discount points are fees paid to the lender and are equivalent to 1% of the mortgage amount. They are regarded as a form of pre-paid interest and are spent in closing in exchange for a reduced interest rate. A borrower, who wants to reduce the interest rate on loan, may opt to pay a lender points as a way of obtaining a lower monthly payment. The more points you pay, the lower your interest rate. Lenders may charge from zero to several points, and it is not necessary for the points to be round numbers. For example, a loan with zero points should have a higher interest rate than a loan with one point. This is known as buying down the rate. How much you can buy down the price depends on the lender, the mortgage market and the type of loan. Get more info.
Origination points are costs that cater to the lender' processing of the loan; this includes processing, underwriting and approving of your home loan application. The lender does not always charge them, are negotiable and can either be a percentage of the loan amount or come in the form of a flat fee. Be sure to confirm how much each lender charges for their origination points as the charges vary Other terms used by lenders to refer to points include terms such as "maximum loan charges" or "loan discounts." Don't hesitate to confirm with your lender if you're not confident. Be sure to read more here!
Before buying points, it's advisable to consider how long you will live in this space, the money you have to put down at closing and if the points are tax deductible. If you plan on moving, maybe opt out of buying points, as this is a financial decision that's more rewarding to a long term homeowner. If you're looking for the lowest closing costs, settle for a zero- point's option on your loan application. Discount points or mortgage points are tax deductible with restrictions while origination points are not tax deductible. Always confirm with your tax expert. You can consider yourself wiser while buying your new home or refinancing on an old home loan. Get ore facts about mortgages at https://en.wikipedia.org/wiki/Fixed-rate_mortgage.