What are Mortgage Points?

Mortgage points are not usually easily understood by most buyers even though some just go ahead and purchase them only in the end to get disappointed. This does not mean that mortgage points have no advantages. They do have some advantages. What’s paramount is that the buyer must fully comprehends the idea behind them and in so doing, decide for or against purchasing them since the circumstances surrounding the buyers are not the same. Below is an explanation as to how mortgage points work.

A mortgage point refers to 1% of your loan amount. For example, if your loan is $40000, a point would be $400. Mortgage points have two meanings: loan origination fees and discount points. However when people say mortgage points, they usually are referring to discount points. Discount points are the amount of money that a person pays to a lending institution in order to be given a low interest rate.

Having known what they are, this now begs the question:’ Are they a good idea?’ well, the answer to that depends on the circumstances surrounding your mortgage. On the surface, it may seem like an apple or pie choice to make, but there are several things that should be considered, one of them being money. The buyers have to ensure that they have some extra cash at closing to enable them pay for the points in advance. If there is any doubt about mortgage points, the answer is a bit clearer. Purchasing the mortgage points is probably not a good idea.

However, having the money in hand does not automatically mean that mortgage points are the best option for you. If there is a better investment in which you can put the money into, and you are sure that the returns will be higher than the amount of cash you will be able to save from repayment of the loan, then screw mortgage points. You can comfortably go ahead and invest your cash. Just be sure that the investment hence the need to be certain. If it is not, then purchasing the points might be more prudent.

Another important note is that mortgage points are tax deductible since they are interest payment related, so if this bothers you, you may have to reconsider.

When all is said and done, the main issue here, as it can be seen is money so thorough financial analysis should be done by the buyer before they even start thinking about mortgage points.

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