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How do you get/buy/pay them? Where do they come from? What are they? How do they help you during tax time, and how would they help you when buying a new home? And if I’m buying a new home, where/how do I get points?

Pros and cons?


3 Thoughts on Will someone please explain to me exactly how mortgage points work?
  1. Reply
    February 10, 2014 at 11:20 am

    discount points are paid in the percentages (1% or 2% or 1.5% etc)
    discount points are prepaid interest that are tax deductible.

    you pay them at closing, and they lower your interest rate.
    You start recouping the costs after 3-4yrs of mortgage payments. Right now may not be a good time to pay discount points as the rates are starting to go down. if the rates go down….and you paid points…you just wasted a lot money.

    the percentage is based on the loan amount…..
    150,000 loan amount with 1 discount point = $ 1,500.00

    origination fees are not discount points….they are also paid in the percentages

  2. Reply
    February 10, 2014 at 12:19 pm

    lenders price their loan rate at “par” which means you are getting the rate without paying Points (each point is 1% of your loan amount) at closing to get that rate, at above par (which means that they are collecting a Service Release Premium for delivering the loan at a higher than “par” rate), and at a buy down rate (you pay points or a portion thereof at closing to get a lower than “par” rate.

    Whether or not to pay points is a very individual decision based upon your particular circumstances. Sometimes it make sense, sometimes it doesn’t. Ask your loan officer to give you some examples.

    Points paid (and usually loan fee paid) are reported by your lender on a 1099 and may be tax deductible inthe year you pruchase the home.

  3. Reply
    Quicken Loans
    February 10, 2014 at 12:36 pm

    Points are pre-paid interest. A point within a mortgage is equal to 1% of the loan amount. So, 1 point on a $ 100,000 loan is $ 1,000.

    In general, points should be viewed as an opportunity within your loan for a lower rate (which produces a lower mortgage payment).Most people pay points in exchange for a rate which is below market – this is called buying down your rate. Sometimes, if parts of your profile aren’t where they should be (credit, income, etc.) points can be charged as a negative adjustment to get you the loan. Your mortgage banker will address points for you when you choose the interest rate you want. If you want to secure a lower rate, they will tell you how many points (how much it costs) it is to get your rate where you want it. Talk with a mortgage banker who can show you the difference and how points would affect you.

    The money you pay directly on points is interest paid and is therefore tax deductible, just as the interest you pay on your home.

    Some brokers charge points to work with them. These are not necessary and you will want to work with a direct lender who can lend their own money and not over-charge you.

    I included a link for a mortgage glossary. Let me know if you have any questions!! Thanks and good luck!

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