What are Mortgage Points and How do They Affect My Interest Rate?

If you’re in the market for a mortgage, you may have heard about mortgage points, which essentially are fees you can pay to your lender at closing in exchange for a lower interest rate on your mortgage.

How Mortgage Points Work

One mortgage point typically costs 1% of your mortgage amount, and it can lower your interest rate by anywhere from 0.125% to 0.25%. So, if you have a $300,000 mortgage, one point would cost you $3,000, and it could potentially lower your interest rate by 0.25%.

The idea behind this strategy is that you’re paying upfront to save money in the long run. If you plan on staying in your home for a while, paying points can be a good strategy to reduce your overall interest payments. However, if you plan on selling your home in the near future, it may not make sense to pay points.

Potential Pros

One of the main advantages of buying mortgage points is that it can save you money on interest over the life of your mortgage. For example, if you have a 30-year mortgage with a 4% interest rate, paying two points could lower your interest rate to 3.5%. Over the life of your mortgage, this could potentially save you thousands of dollars in interest payments.

Another advantage of buying points is that it can lower your monthly mortgage payment. This can be especially helpful if you’re stretching your budget to afford your monthly payments.

Potential Cons

One of the main disadvantages of buying points is that it requires upfront cash. If you’re already stretched thin on your down payment and closing costs, paying for points may not be feasible.

Another potential disadvantage of buying  points is that it may not make sense for your particular financial situation. For example, if you plan on moving in the near future or refinancing your mortgage, paying points may not provide a significant enough benefit.

All that to say…

Mortgage points can be a great way to save money on interest over the life of your mortgage, but they’re not for everyone. It depends on everyone’s unique situation, and you should crunch the numbers to see what makes the most sense for you and/or your family.

If you’re considering buying mortgage points, it’s important to carefully consider your financial situation and long-term goals. If you’d like help weighing the pros and cons and determining if buying points is the right choice for you… we’d love to help.

We’re a family-run company that has a very important Direct Lender Advantage. That basically means we use our own money and make our own decisions within our own walls. There’s no middle man.  For you, this often means a shorter turnaround time and a better rate… which can save you monthly and lifelong money, whether you’re refinancing or buying a new home.

Get started here with no strings attached.