How Do You Understand Mortgage Discount Points And Should You Pay Points?
Whether you are buying your first home, or refinancing, you will be confronted with the decision of paying discount points on your home loan. Once you understand what mortgage discount points are, and how it effects interest, your decision will be easy. A reputable mortage lender should also be able help you through your analysis. Mortgage discount points are money paid to a lender to decrease the interest portion paid on future payments. Simply stated, points can be looked at as prepaid interest on a mortgage loan. For example, a lender offers you a 100,000 mortgage at 5.5% and no points. The payment would be $568 per month, and $104,404 paid in interest over the 30 year loan. Now take the same loan amount and the lender offers 5.25% with 1/2 point. Your payment would now be $552, and $99,293 in interest which includes $500 in points. If you kept this loan for the 30 year term, it would make financial sence to have paid the points since you would have saved $5,111 in interest. If you
