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Old 05-13-2006, 09:59 PM   #1
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Default Can someone please explain Mortgage points to me?

Looking at mortgage rates kind of for the first time, I can't figure out what points are and what they mean. For example, here's a box for the rates that are available to me from one mortgage company:



6.68 ------1.50----------6.86


Can someone tell me what the hell I'm looking at?
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Old 05-13-2006, 10:05 PM   #2
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Points are usually a combination of origination fee and discount points, expressed as a percentage of the loan amount. In other words, if you're paying 1.50 points, you're paying 1.5% of the total loan value to the mortgage company as a fee for originating that loan at that interest rate. Origination fee is just what it sounds like. Discount points allow you to "buy down" the interest rate. That's why you'll typically see higher points for lower interest rates.

So in the example above, you can pay no points to get an interest rate of 6.75%, or 1.75% for an interest rate of 6.25%. Which would be better for you? It depends on how much money you have, and how long you're planning to be in the home. If it's a long time and you have the cash, then it 's generally better to pay for the points. If you're not sure, or you know it won't be long, then you should skip it.

If you have an HP calculator, you can work out how long it would take for th e lower interest rate loan to pay for itself relative to the higher rate loan.
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Old 05-13-2006, 10:28 PM   #3
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Extra up front payment to get you a lower interest rate.

Makes sense on the rare occasion that the cost of the points is less than the interest you'll save (usually means you have to keep the mortgage long enough to make it worth it).
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