The mortgage world can be complex and full of new terms, particularly for first-time buyers. One such term is “mortgage points,” which describe the format you’ll use to pay a mortgage and may include certain discounts.
At Altius Mortgage and our partners at Mortgage Ogden, we’ll walk you through mortgage points and a variety of other terms that may come up while dealing with mortgages. Let’s go over what mortgage points are, what types are available, and whether your situation might benefit from involving them.
In the simplest terms, one mortgage point is equal to 1 percent of the total loan amount. If you’ve taken out a loan for $400,000, one mortgage point for you will be $4,000.
In most cases, point totals will be paid to the lender at closing time for the loan. The lender chooses the number of points that will be charged, with common charges here usually being two or three points. Mortgage points are available for both new mortgages and for a refinancing situation.
There are two primary types of mortgage points:
• Origination points: Points that are used to pay loan officers for costs related to closing. These points will not be tax-deductible. In some cases, the lender may choose to waive these points during a purchase situation at their discretion.
• Discount points: Discount points work in the same way as prepaid interest fees. The more points you pay up front for the loan, the lower the interest rate will be since you’ll be subtracting from the final principal amount. Discount points are also tax-deductible.
Choosing whether or not to pay mortgage points will be a process that varies between borrowers. The largest factor is likely how long you plan to stay in your home. Paying more points means you’re spending more up front in exchange for a lower interest rate through the life of the loan – but if you plan to be flipping the home back around relatively soon, higher interest won’t matter as much and you might be better off not paying points. If you plan to stay in the house for a long time, though, points should be a consideration.
For more on mortgage points, or to find out about any of our other services, speak to the mortgage brokers at Mortgage Ogden today.