Mortgage points can be a confusing topic, especially if you’re not familiar with them. And while they are hefty in value, the information surrounding them is often overwhelming. So, let’s start with the most basic point: What, exactly, are mortgage points, and why do I need to know about them?
Here’s a quick and simple guide to understanding the “what” and “why” of mortgage points:
When your lender, loan officer or real estate agent brings up mortgage points, it’s best to think of them as discount points. These are typically points, calculated to roughly 1% of your final mortgage, that can be applied to your mortgage interest to bring the overall interest rate down throughout the life of your mortgage loan.
Mortgage interest rates are typically calculated into your monthly mortgage payment. With mortgage points, you can bring your overall monthly payment down by paying into your interest rates ahead of time.
So, if you have a mortgage of $200,000 with interest rates already calculated in, paying $2,000 up front would grant you a mortgage point, being that it is 1% of your overall mortgage balance.
While it may seem easier to simply pay your monthly payments, and for some it’s the ideal choice, you may want to consider mortgage points if you’re searching within a market with slightly higher interest rates.
Likewise, if you’re planning to stay in your home long enough to watch your prepaid interest pay off in the long term, mortgage points may also be worth investing in.
Mortgage points can raise your overall closing costs by a significant amount. However, based on your unique circumstances, the bulk closing costs may be worth it if you’re interested in decreasing your monthly payments for the overall life of the loan.
Still have questions? Try connecting with your loan officer, lender or real estate agent to help guide you through the process.
Kimberly Kelly decided to get her real estate license when she moved to South Orange with her family and fell in love with the classic, period homes of the area. Having worked in the city for many years for LexisNexis, Kim understands the appeal of an easy commute to NYC. That’s why she specializes in towns along the Mid-Town Direct train line, offering welcoming communities, good schools, and space to grow.
Very active in her children’s school PTA, Kim knows firsthand how important a school system is to parents looking to make the move to the ‘burbs. She volunteers with fairs, fundraising, and other activities that bolster support for education. Kim also believes involvement in the greater community enriches us all and has sat on various boards & associations throughout the years.
Kim Kelly has lived many places throughout her life, from Pennsylvania to Oregon, but has found New Jersey to be the ideal place to raise her family and put down roots. She loves nothing more than helping others discover their special place as well. Kim’s extensive knowledge of the area, combined with her sense of community, offers clients a personalized guide to finding the right house - and town - to call home.
