Mastering mortgage points: A key to better home financing.
In response to a question from Crystal on Facebook, I’d like to shed some light on a common term in the mortgage finance world: points. Understanding what points are and how they work can be crucial when financing your home.
Simply put, a point in mortgage finance terms is equivalent to 1% of the loan amount. For instance, on a $200,000 loan, one point would equal $2,000. Lenders, as part of their business model, often offer the option to pay points upfront as a way to reduce the interest rate on the loan. This could be thought of as prepaying some of the interest.
From a strategic perspective, paying points can be beneficial in certain scenarios. It’s a trade-off where you pay more upfront to secure a lower interest rate, potentially saving money over the life of the loan. This can be particularly attractive in a market where interest rates are on the rise, as we’ve seen in the past six to 12 months.
“Understanding how points work is essential for anyone considering a mortgage.”
Creatively, points can also be integrated into real estate offers. For example, a buyer might negotiate with the seller to cover one or two points as part of the closing costs. This strategy can enable the buyer to obtain a mortgage at a more favorable rate.
Understanding how points work is essential for anyone considering a mortgage. It’s always best to discuss this with a knowledgeable lender who can explain how buying down the interest rate via points might benefit your specific situation. If you’re looking for lender recommendations or have questions about home equity lines and points, feel free to give me a call.
