What Are Mortgage Points?

Are you a first time homebuyer, or someone who is still learning their way around what can be a complex mortgage world? At Primary Residential Mortgage, we’re here to help you navigate the landscape and get the best situation for you and your family.

One piece of the process that we’re happy to advise on is mortgage points, a feature many people aren’t aware of. Mortgage points partially describe the format you’ll use to pay a mortgage, and can include other discounts as well. In certain cases, they can make a home loan situation significantly more beneficial for the buyer. Here are the basics on mortgage points, and whether they’re a good choice in your situation.

Mortgage Points Basics

Defining mortgage points within a given mortgage is simple: One point is equal to 1 percent of the total loan amount. If the loan is for $300,000, a single mortgage point is equal to $3,000.

Most of the time, if points are chosen as a payment method, they’ll be paid to the lender at closing time. The lender has discretion over the number of points charged, with the most common amounts being two or three points. Points can be used as a payment format for both new mortgages and a mortgage refinance.

Types of Points

There are two types of mortgage points:

• Origination points: Generally the less beneficial of the two, these are points paid to loan officers for closing costs. They are not tax-deductible. However, in some cases, lenders will waive these points.
• Discount points: Discount points are basically prepaid interest fees – you can pay them up front and knock off some of the principal loan amount. This will lower your interest rate over the life of the loan. Discount points are also usually tax-deductible.

Should You Pay Points?

The biggest factor in choosing whether to pay points is how long you plan to live in the home you’re purchasing. For shorter stays, points may not make sense – doing so lowers long-term interest, but you can only see so many benefits from this if you’re going to flip the place within a few years. If you plan to stay long term, however, paying points could be a great way to find long term cost savings.

For more information on mortgage points or any of our other services, speak to our mortgage brokers at Primary Residential Mortgage today.

*The views and opinions expressed are my own and do not necessarily represent the official policy or position of Primary Residential Mortgage, Inc.