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What Are Mortgage Points and How Do They Work?

By January 2, 2020No Comments
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Buying a home can be very confusing but is also one of the most expensive purchases you are likely to ever make throughout the course of your life. At White River Credit Union, we know how stressful the experience can be, and, through our many member services, we are here to help you through it every step of the way. From housing trends to closing costs, it is important to have a knowledgeable lender by your side.

One optional aspect of the home buying process is the possibility of investing in mortgage points when you take out a fixed rate mortgage. Never heard of them? Don’t fret. We will be giving you all the information you need to fully understand what mortgage points are, how they work, and if they are right for you.

What Are Mortgage Points?

Mortgage points, also known as discount points, are a way to lower your interest rate when you take out a fixed rate mortgage. You will pay a certain amount per point, and the more you invest in mortgage points the lower your interest rate will be over the course the whole home loan.

After you apply for your home loan, your lender may offer discount points to lower your overall interest rate. Generally, you may be able to purchase between 1 and 3 mortgage points, and these will be paid for as part of your closing costs.

How Are Mortgage Points Calculated?

Normally, one discount point equals 1% of your total home loan amount and, depending on the lender, lowers the interest rate of your mortgage between one-eighth and one-quarter of a percent. This is known as “buying down the rate” since, in essence, you are prepaying the interest on your home loan rather than doing so over the course of time.

Should I Get Mortgage Points for My Home?

Many people ask if they should invest in mortgage points for their home since it can be quite a bit more money paid upfront. The deciding factor is the break-even point on the mortgage. The break-even point is when the interest you saved is equal to the amount you paid for the mortgage point in the beginning. 

After a certain amount of time, you will have saved the same amount that you paid for the mortgage point; once you have hit the break-even point, you then start to pocket that amount each month. If you reach the break-even point (meaning you still reside in the home by the time you reach it), then mortgage points could be worth it.

Contact Our Enumclaw Mortgage Experts

At White River Credit Union in Enumclaw, we know that the home buying process can be difficult, and there are so many things to be aware of. Our mortgage experts are here to help any of our members looking to buy a home get through the process and understand exactly how it works. For more information on mortgage points or to find out what our adjustable and fixed-rate mortgages are, contact us today.

 

 

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