What are Mortgage Points?

Mortgage points, also known as discount points, are fees that a borrower can choose to pay in order to lower the interest rate on their mortgage. Each point is equal to 1% of the loan amount and can be used to buy down the interest rate.

For example, if a borrower is taking out a $300,000 mortgage loan and chooses to pay one point, the cost would be $3,000. In return, the lender may offer a lower interest rate on the loan. The lower the interest rate, the less the borrower will pay in interest over the life of the loan.

It is important to note that paying mortgage points is not always the best decision. It depends on the individual’s financial situation and how long they plan to stay in the home. If a borrower plans to stay in the home for a long period of time, it may make sense to pay points to lower the interest rate and save money over the life of the loan. However, if the borrower plans to move in a short period of time, it may not make sense to pay the points as the savings on interest may not outweigh the cost of the points.

In summary, mortgage points are an optional fee that a borrower can choose to pay in order to lower the interest rate on their mortgage. It is important for borrowers to carefully consider their financial situation and how long they plan to stay in the home before deciding to pay points.