Step by Step Mortgage Guide

Should I Pay Points?

MortgageloansNJ.com

 

There are several factors that go into deciding whether points are the best option or not. First you need understand exactly what points and what they provide. Basically a point is equivalent to 1% of the loan amount. ( For Example, 1 point on a $100,000 loan would be $1,000)

Points can be either origination points, which are charged by the lender to cover the costs of making the loan. These points provide no benefit for the client.

The other type of points are called discount points, which are actually prepaid interest on the mortgage loan. When a borrower pays discount points they can reduce the interest rate based on how many points they pay.

If you plan to stay at the home for limited amount of time then you may want to consider not paying points and just paying the higher rates. However if you have the cash available and will be living at the home for a long time, then points can save you thousands of dollars in interest payments over time.

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