Mortgage points, also referred to as ‘discount points ‘or an origination fee are made payable at closing. Each point is charged at a portion of 1% of your mortgage loan. A discount point reduces your interest rate by a set amount. The amount by which the rate is reduced for each point varies according to your mortgage and your lender. On average it is 0.25% – 0.5%. A discount point is different than an origination fee; however it can also be termed ‘a point.’
The origination fee is a lender fee. Some lenders charge this fee while others don’t. You should always ask your mortgage professional whether the quote they are offering has an origination fee and/or discount points associated with it. This will allow you to know exactly what your monthly payment will be.
If you reduce your interest rate by paying discount points, your monthly repayment will also be reduced. It is a good idea to take into consideration what the monthly savings are by paying the additional cost of points and whether it is money well spent. You may want to use the funds to increase your down payment or do some improvements to your new home, which in turn will increase its value or make the home more enjoyable to you. Points can in some cases be tax deductible, so it is a good idea to check with your tax professional for advice.
Mortgage points can be a good investment for you. Your mortgage professional should help you with this calculation and find what will work best for you in the long run. As I always say, never hesitate to ask questions. Mortgage professionals are here to help you during this process and to make it go as smoothly as possible.
If you have any questions or suggestions on future topics please feel free to contact me at Ingrid.Quinn@cobaltmortgage.com or visit me at http://www.CobaltMortgage.com/IngridQuinn or http://www.ScottsdaleMortgageExpert.com .