If you're shopping for a mortgage, you might come across the term "mortgage points." Don't worry, it's not a game! They can actually help you save some serious cash. Let's dive in and understand how they work, so you can decide if they're worth the score.
Mortgage points, also known as discount points, are fees that borrowers can pay to a lender at closing in exchange for a reduced interest rate on their loan. One point typically costs 1% of the total loan amount, and it can lower your interest rate by about 0.25%. Sounds like a small gain, but over the life of your mortgage, it can add up to significant savings.
So, how do mortgage points help you save money? Well, it all depends on how long you plan to stay in your home. If you're planning to be there for the long haul, paying points upfront can be a wise financial move. By reducing your interest rate, you'll enjoy lower monthly mortgage payments. Over time, the savings can far outweigh the initial cost of the points. On the other hand, if you intend to sell or refinance your home within a few years, paying points might not make sense. It's crucial to run the numbers and calculate the breakeven point before deciding whether or not to buy mortgage points.
In conclusion, mortgage points can be a smart strategy for borrowers who plan to stay in their homes for a significant period of time. By paying points upfront, you can secure a lower interest rate, which translates to savings over the life of your loan. However, if you're not sure about your long-term plans, or if you intend to sell your home in the near future, it's best to bypass mortgage points. Remember, what works for one borrower may not work for another. Be sure to weigh the pros and cons and consult with your mortgage professional to make an informed decision.
