What Are Mortgage Points?
Points are one of the most confusing aspects of the home buying process. A point is simply 1% of the mortgage loan amount. There are two types of points, discount points and origination points. In the simplest terms possible, with discount points, your lender will allow you to “buy” or “pay” points to lower your interest rates. Typically, borrows usually buy 0-4 points depending on how much they can afford. These fees are tax deductable, but with all the other expenses involved in closing a house deal a lot of people simply can’t afford to buy points as well. One discount point that you buy will lower a fixed rate mortgage by .250%. Origination points are charged by lenders to pay for the loan origination costs associated with processing the mortgage loan.
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