Many people have heard of the word points or have heard of the term, paying points, as it applies to buying a home. Some consumers, however, are not sure what that word or term means, and this is unfortunate because the subject is important. This article examines the basics behind the point system in home buyer.
When you buy a home, you must often pay points. Paying points is a method of paying interest in one lump sum, up front, in order to get a lower interest rate on a fixed rate mortgage. It is easy to calculate the value of a singe point. One point is equal to 1% of the mortgage amount. It is easy to see that the more points you pay, the lower your mortgage rate will be.
An example might be: A 30-year, $150,000 mortgage might have a rate of 6.7%, but come with a charge of 1 point, or $1,500. To pay this point, you would have to pay the $1,500.
A lender can charge 1, 2 or more points. There are two kinds of points: Discount points and origination points.
Discount points: These types of points are truly prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan. It also goes that the fewer points you...
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