Should I Be Paying Points on My Home Mortgage Loan?

An alternative to a normal mortgage payoff is paying points on your home mortgage loans. Points are fees you pay to your lender up-front when first get your loan. This is close to the equivalent of a down payment. Each point is equal to one percent of the mortgage amount. So, for example, if you paid 2 points on a $500,000 loan you would be paying $10,000.

Why would anyone choose to pay these points?

The more points you pay the lower your interest rate will be. Often times, lower interest rates are something that should look to be avoided at all cost. The more points you pay the more up-front cash you will need. Overall, you are paying for a discount on your mortgage rate. When you hear about great mortgage rates they are usually adjusted for the number of points you pay on your mortgage. There are mortgage without points but their interest rates are higher.

Are points right for you?

That depends on your situation. If you would rather pay more at the closing and reduce your monthly payments then it is probably a good idea. Maybe you do not have the money now so it makes more since to not pay points and have a higher monthly payment. The shorter the length of your mortgage is the less likely you are to pay points on your mortgage. The longer your mortgage the more you benefit from having a lower interest rate. The decision to pay points is not up to you and based on your current financial situations. If you have a longer mortgage and can afford to pay more money upfront then it is probably a good idea to pay points on your home mortgage loan.

Points are only good if they are the right move

Like always, do your research. It is easy to get caught up in what may seem like the “fad.” But the only real way this works is if it has a positive impact on your financial situation. So go over all the scenarios, and then decided what is right for you. Because the last thing you want to do is get caught in the middle of a loan that weighs you down. Just be smart about it, and you will have a good experience.