Understanding Mortgage Points

 

For people who intend on buying a house or paying a certain kind of a loan, the term mortgage is not foreign to them, however mortgage points may be. Mortgage points are simply a pre-payment done on the interest that the mortgage should incur. These mortgage points are usually 1% of the amount that is being mortgaged.

 

There are two types of mortgage points these are the discount points and the original points. Discount points are interest that is prepaid and when one pays this interest often, then the more likely the interest rate will lower on the loan. This process of paying these discount points is technically referred to as buying down the rate because for each purchase of the points, the interest rates decrease to about 0.25%. There is flexibility in buying down rates because lenders give the chance to buy these discount points from about one to three discount points. However, it is important to consider the fact that every lender has their own points structure and payments structure hence the much that these interest rates can be reduced by, depends solely on the lender. But what is standard among the lenders is that each point bought lowers a great proportion of the interest rate.

 

The other type of points on a mortgage we shall look at are the original points. These points primarily cover the cost that the lender incurred in processing the loan. They can be negotiated but they are a means used to pay back the closing costs. It is also common to have these original points vary per loan lender.  Therefore, it is very important to the original points that the mortgage lender will charge. Get more info.

 

It is also good to have all the information about mortgage points before one decides to buy them and pay them. The factors to look into before deciding on paying mortgage points are the duration one plans to stay in the home and the finances the individual is willing to use to secure the mortgage. This is because if the idea is to move out after a few years then buying the points is not the best option. Get into some more facts about mortgages at http://money.cnn.com/calculator/real_estate/mortgage-payment/.

 

When dealing with mortgage points it is also important to consider whether or not the points are tax-deductible. Discount points are deductible but they have some limitations. These restrictions include the finances used to buy the points should be paid directly to the lender and the mortgage must also be used to build or buy a home and this home will be the collateral for the mortgage. Original points are however not deductible. Be sure to read more here!