As a top mortgage company in Utah, we at City Creek Mortgage are here to both help and inform. The mortgage world can be complex, with a number of terms often thrown around that can be confusing to some people.
One such term is mortgage “points,” also called “discount points.” These points help describe how you’ll pay off your mortgage loan, plus any discounts you may be afforded by your lender. Let’s go over the basics and types of points, and whether you should consider paying them.
What Are Points?
In the most general sense, points equal 1 percent of the total loan amount. If the total loan is, say, $300,000, a single point will be equal to $3,000. In many loan situations, points will be paid to the lender upon the closing of the loan. The lender can choose to charge any range of points at this time, but the most common amounts generally charged are two or three points. Mortgage points can be found both for a new mortgage and for a mortgage refinance situation.
Types of Points
There are two basic kinds of points:
- Origination points: These are used to pay loan officers for costs that relate to the closing of a loan. These points are not tax-deductible, but they can be waived by the lender if they so choose.
- Discount points: Discount points function as prepaid interest fees. This means the more points paid on a loan, the lower the interest rate will be. Discount points are also tax-deductible.
Should I Pay Them?
Whether you should pay points will vary, and will largely depend on how long you plan to stay in the home. Paying more points represents a higher upfront cost, but will also likely give you a lower interest rate that will cause you to save money over the life of the loan. If you’re thinking of selling after a few years, though, higher interest might not mean as much, and you might not want to pay points.
For more information on mortgage points, or to find out about any of our other mortgage services, contact the brokers at City Creek Mortgage today.