![]() Just know this process is known as “buying down the rate.” But remember, you’re really just prepaying interest here. Okay, we know we just threw a lot of numbers at you hard and fast. $12,743 interest savings – $2,400 mortgage point = $10,343 true savings $197,778 original total interest paid – $185,035 reduced total interest paid = $12,743 amount savedīut when you account for the $2,400 you paid for the mortgage point, you really only saved $10,343. With one mortgage point, you’ll drop that amount to $185,035-which saves you $12,743 in total interest. Without any mortgage points, you’ll pay a total of $197,778 in interest. You can use our mortgage calculator to figure the difference between the interest amount with the original rate (4.5%) and the interest amount with the reduced rate (4.25%) over the full lifespan of the loan. This slightly lowers your monthly payment from $1,562 to $1,526-which is $36 less a month on a fixed-rate conventional mortgage. To buy mortgage points, you pay your lender a one-time fee as part of your closing costs.ĭave Ramsey recommends one mortgage company. Most lenders allow you to purchase between one to three discount points. Your point options will be on official home transaction documents like the Loan Estimate and Closing Disclosure. In reality, you’re just paying part of it at the beginning instead of paying it over the life of the loan.Īfter you apply for a mortgage, your lender will offer discount points as a way to lower your overall interest rate. That might sound all sunshine and roses at first, but get this-it’s going down because you’re prepaying the interest. And the more points you pay, the lower the interest rate goes. ![]() The price you pay for points directly impacts the total interest of the loan. Lenders offer mortgage discount points as a way to lower your interest rate when you take out a mortgage loan. ![]() Next up (and for the rest of this article), let’s talk discount points. Trust us, you’re better off paying out-of-pocket for their service. This type of mortgage point is basically a fee that doesn’t lower your interest rate. Let’s get origination points out of the way (because, honestly, that’s not really what this article is about). So what types of points are we playing for here? Just like with basketball (stick with us here), there are different types of mortgage points: origination points and discount points. (Lucky for you, we’ve narrowed it down to what’s actually important.) Since buying a home is one of the most expensive purchases you might ever make, we’ve found out everything you ever wanted to know about mortgage points. Mortgage points can be super confusing, which makes it really hard to know whether or not they’re a smart choice for you. And points are how you win the game, so you want as many as you can get, right? Turns out, these points come at a cost. Mortgage points are kind of like free throws in a basketball game.
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