Providing Valuable Mortgage Insight:
Most Current Industry News, Market Conditions, Financial Discussions, Lender Practices, Real Estate News and Answering Your Specific Loan Questions.
Thursday, June 14, 2012
Mortgage points explained
people want to find out how much their mortgages cost, lenders often
give them quotes that include both loan rates and points.
What exactly is a point?
point is a fee equal to 1 percent of the loan amount. A 30-year,
$150,000 mortgage might have a rate of 7 percent but come with a charge
of 1 point, or $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 are actually prepaid interest on the mortgage
loan. The more points you pay, the lower the interest rate on the loan
and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4
points, depending on how much they want to lower their rates.
of point is tax-deductible.
This is charged by the lender to cover the costs of making the loan.
The origination fee is deductible if it was used to obtain the mortgage
and not to pay other closing costs. The IRS specifically states that if
the fee is for items that would normally be itemized on a settlement
statement, such as notary fees, preparation costs and inspection fees,
it is not deductible.
How do you decide whether to pay points, and how many? That
depends on a number of factors, such as how much money you have
available to put down at closing and how long you plan on staying in
But if you need the lowest possible closing costs, choose the zero-point option on your loan program.
By the numbers ...
lender might offer you a 30-year fixed mortgage of $165,000 at 6
percent interest with no points. The monthly mortgage principal and
interest payment would be $989. If you pay 2 points at closing (that's
$3,300) you can bring the interest rate down to 5.5 percent, with a
monthly payment of $937. The savings difference would be $52 per month.
But it would take 64 months to earn back the $3,300 spent upfront via
lower payments. If you're sure you will own the house for more than
five-and-a-half years, you save money by paying the points.
views, opinions, positions or strategies expressed by the authors and those
providing comments or external internet links are theirs alone, and do not
necessarily reflect the views, opinions, positions or strategies of First
Capital, we make no representations as to accuracy, completeness, current,
suitability, or validity of this information and will not be liable for
any errors, omissions, or delays in this information or any losses, injuries,
or damages arising from its display or use. Any
information provided does not constitute an offer or a solicitation to lend.
Providing information to purchase does not guarantee a loan approval. All registered
trademarks, copyright, images, or other items used are property of their
respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a
direct lender, Dept. of Corporations file #413-0713 NMLS#4256