What are mortgage points and how they can lower your interest rate explained


Home buyers and those looking to refinance can reduce their interest rates with the help of mortgage points.

They can come in handy as a 30-year average rate. mortgage According to Bankrate, it rose to 3.85% from 3.76% last week.


There are two different types of mortgage points – discount points and origination points.credit: getty

Mortgage rates are back Levels last seen in the early days of the pandemicaccording to weekly survey of major lenders.

Meanwhile, the Federal Reserve plans to Raise interest rates this year tooWhich will affect homeowners across America.

Below we explain how mortgage points work.

What are mortgage points?

Mortgage points are a fee that a home buyer pays directly to the lender.

There are two different types of mortgage points – discount points and points of origin.

Discount points represent prepaid interest that can be used to negotiate a lower interest rate for the term of the loan.

For example, by paying 1% in advance of the total interest charged during the term of the loan, borrowers can obtain a lower mortgage rate, typically around 0.25%.

This is also called buying down the rate.

Meanwhile, origination points don’t directly help you get a lower interest rate and are instead lender fees that are levied to close on the loan.

Lenders are required to provide a Closing Disclosure Form that shows all fees to be paid within three business days prior to the scheduled closing of your loan.

Therefore, it is important to review this document to make sure you are paying discount points instead of base points.

Are Mortgage Points Worth It?

To determine whether mortgage points are worth it, you’ll want to figure out your break-even point.

The break-even point is where you have paid the cost of buying the point.

If your break-even point falls after your desired sale date, it usually isn’t worth it.

Therefore, the value of mortgage points will ultimately depend on how long you want to stay in your home.

If you’re refinancing, you can find your break-even point by dividing your closing costs by the amount you save each month.

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