Mortgage Points
October 11, 2008
Mortgage points are financing charges or prepaid interest. One point is equal to one percent of the mortgage amount. The mortgage lender who uses the loans interest rate and current market conditions in determining the mortgage points due helps to determine mortgage points. The points are collected at the time of the closing. The more points you pay the lower your interest rate.
If you intend to keep your house for longer than three years it is advisable to pay the mortgage points up front to save money with a smaller interest rate if you can afford it.
The two biggest benefits of mortgage points are lowering your interest rate and tax breaks for the home owner.
If you don’t intend to stay in the home for more than 2 1/2 years you might want to look into rebates or negative points. This is where the loan company gives you money for taking a high interest rate. Anything more than three years though and you would be paying a significant amount of interest and are no longer profiting from the rebate because this option is only beneficial for short time home owners.
Negative points are used to finance the settlement cost of the home loan process. You cannot use these points as part of a down payment. Therefore, you should never agree to a higher interest rate whose negative points exceeds that of your settlement cost.
The disadvantage of negative points is often that mortgage lenders who sell their negative points packages using independent mortgage companies. The loan officers and mortgage brokers of these companies some times will take advantage of the situation and raise prices for higher commissions.
Unfortunately it is difficult to identify these discrepancies because it is hard to track those who are raising the negative points. Your best bet is to do your own research and educate yourself about the current negative points packages that are availabe to you to find out if you are getting the best deal.
Most people however find it to be a great investment to pay mortgage points to secure a lower interest rate. The savings that’s produced from this investment gets larger the longer you remain in the home.
