What are points?
A. A point is 1% of the loan amount. For example, for 2 points on a $300,000 house, you will pay 2% of $300,000, or $6,000. The number of points charged for a mortgage depends on the circumstances. Sometimes it is advantageous to pay higher points and get a lower interest rate, as you’ll end up paying less over the life of your loan. You will pay for the points at the time of closing and may be able to deduct the point amount as interest on your income tax return. The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes. You should consult a tax adviser for further information regarding the deductibility of interest and charges.
Points represent additional money paid to the lender at closing. They are expressed as a percentage of the loan amount. For example, 1 point is equal to 1.00% of the loan amount. If you choose to pay points, your interest rate will be lower. Typically on a fixed rate loan, for each point you pay, the interest rate on your note may be reduced by 1/8th (0.125) to ¼ (0.25) of a percentage point. Similarly, on a hybrid loan (an adjustable mortgage with an interest rate fixed for an introductory term of 3-10 yrs) a point paid will reduce the initial note rate by a comparable amount. On an adjustable rate mortgage, paying points will oftentimes reduce your start rate, margin and lifecap by ½ of a percentage point (0.50%) or more.
Points are a percentage of your loan amount that you are required to pay the lender at closing to reduce your interest rate. For example, 1 point equals 1% of your loan amount, 2 points equals 2%, etc. If you are quoted a rate of 7% but would prefer 6.5%, it may cost you a point to “buy down” the rate, or 1% of your loan amount. For more information about how Signature Mortgage Group, Inc. can tailor a loan that’s right for you, please contact us.
Points are loan fees that are paid to lenders and mortgage brokers. One point equals 1% of the loan amount. There are two different types of points: origination points and discount points. Origination points are charged by a mortgage company as a fee to process and approve your loan, while discount points are used to buy down the rate of interest. Discount points are typically passed through to the investor to secure that lower interest rate.
