What is a Mortgage Point?
When purchasing your home a lot goes into the total cost of your mortgage: down payment, interest, closing costs, etc. While your personal financial situation (salary, credit score, etc.) will play a large role in the interest rates you are offered, you can also have a little control over what type of interest rate you obtain your mortgage. A mortgage point, or discount point, is a fee equal to one percent of the loan amount. But why would you want to pay a point?
Discount points are paid by a borrower in order to lower their interest rates. Essentially, mortgage points are prepaid interest on a loan. The more points you pay up front the lower the interest rate. There are a number of factors that go into how many points a borrower can choose to pay on their mortgage. If you have more money saved up than what you want to use for your down payment, you can use that money to lower your rates. If you plan on staying in your home for more than a few years it may be in your best interest to lower your interest rates.
According to Mike Dulla, President of United Home Loans, discount points may be a good idea in the current interest rate environment. “We typically only recommend that borrowers pay discount points if all of the following apply – they are putting at least 20% down, they plan on living in the home for longer than five years and they feel that interest rates will not drop significantly any time over the next several years. Since the Fed may be winding down their stimulus program at the end of 2013 and into 2014, it seems unlikely that rates will drop significantly any time soon.”
Call United Home Loans today to speak with a mortgage banker about what type of mortgage program would best fit your needs.