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Mortgage Loan Points are fees that are paid by a borrower to a mortgage lender. They are linked to the home purchase interest rate, and the more points you pay, the lower the mortgage interest rate will be.
One point is equal to one percent of the loan amount, and you will probably have to pay the points in cash at the closing. If you can’t afford to pay in cash, you may be able to borrow the amount, though this will add to your loan amount.
You can find information about the current rates and points being offered by different mortgage lender companies in the newspapers.
Ask mortgage lenders to mention the points quoted as a dollar amount, so you will know how much you will actually have to pay.
Look for the best combination of points and mortgage interest rate that is suitable for you. If you are short of cash to pay the points, you may have to settle for a higher interest rate.
If you have the money to pay the points, but don’t have a high income to cover the monthly payment, you can opt to pay more points and reduce the interest rate.
If neither of these constraints is applicable, and if the term of the loan is quite long, it is preferable to opt for a lower interest rate with higher points. A higher interest rate with lower points may be preferable if you have a short loan term.
You can use a mortgage calculator to analyze the costs and benefits of different combinations of points and interest rates.
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