Mortgage points, also known as discount points, are a type of fee that borrowers can choose to pay in order to reduce their mortgage interest rate. One mortgage point is equal to 1% of the total loan amount. For example, if you are borrowing $300,000, one mortgage point would cost $3,000.
When you pay mortgage points, you are essentially pre-paying a portion of your interest. For every point you pay, your interest rate will be lowered by a certain amount. The amount of interest rate reduction will depend on the lender and the current market conditions.
The decision to pay mortgage points should be made based on your unique financial situation and how long you plan on staying in the home. If you plan on staying in the home for a long period of time, it may make sense to pay mortgage points in order to secure a lower interest rate. However, if you plan on moving within a few years, it may not be worth it to pay the points.
Additionally, it is important to consider your current credit score and financial situation when deciding whether or not to pay mortgage points. If you have a high credit score and a significant amount of cash on hand, paying points may be a smart financial move. However, if you have a lower credit score or less cash on hand, it may be better to opt for a higher interest rate and avoid paying points.
In summary, mortgage points are an optional fee that borrowers can choose to pay in order to lower their mortgage interest rate. The decision to pay points should be based on your unique financial situation and how long you plan on staying in the home. It’s important to consider your current credit score and financial situation when making this decision.