Mortgage points can be a confusing topic, especially if you’re not familiar with them. And while they are hefty in value, the information surrounding them is often overwhelming. So, let’s start with the most basic point: What, exactly, are mortgage points, and why do I need to know about them?
Here’s a quick and simple guide to understanding the “what” and “why” of mortgage points:
What are mortgage points?
When your lender, loan officer or real estate agent brings up mortgage points, it’s best to think of them as discount points. These are typically points, calculated to roughly 1% of your final mortgage, that can be applied to your mortgage interest to bring the overall interest rate down throughout the life of your mortgage loan.
How do mortgage points work?
Mortgage interest rates are typically calculated into your monthly mortgage payment. With mortgage points, you can bring your overall monthly payment down by paying into your interest rates ahead of time.
So, if you have a mortgage of $200,000 with interest rates already calculated in, paying $2,000 up front would grant you a mortgage point, being that it is 1% of your overall mortgage balance.
Why do I need to know about mortgage points?
While it may seem easier to simply pay your monthly payments, and for some it’s the ideal choice, you may want to consider mortgage points if you’re searching within a market with slightly higher interest rates.
Likewise, if you’re planning to stay in your home long enough to watch your prepaid interest pay off in the long term, mortgage points may also be worth investing in.
Mortgage points can raise your overall closing costs by a significant amount. However, based on your unique circumstances, the bulk closing costs may be worth it if you’re interested in decreasing your monthly payments for the overall life of the loan.
Still have questions? Try connecting with your loan officer, lender or real estate agent to help guide you through the process.
About the Author
Julia Brown and Barry Weiss Weiss
Introducing the partnership of Brown & Weiss. Julia & Barry have a combined 23 years of experience in real estate and over 70 combined years of customer service. They each have lived in the Wilmington area for over 20 years and are very familiar with the local market. Their savvy negotiations and cutting edge marketing join uncompromising integrity as the hallmarks of Julia and Barry’s service. They are well respected in the Wilmington area not only for their professional track record and high ethical standards, but for being hardworking individuals that will do anything in their power to ensure their client’s success. Julia and Barry enjoy working for the number one real estate company in the area- Coldwell Banker Sea Coast Advantage. With the Coldwell Banker brand and their experience behind the sale or purchase or your home, you can’t go wrong. So, put us to work for you today and “Let us light your way home".
