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Mortgage Points

Mortgage points can be a good or bad thing, depending on how you look at. Points are fees you will pay your lender at closing. Points cost one percent of the total loan cost. You buy points in order to lower your mortgage interest rates or to compensate the lender with the costs of putting together the loan. There are two different types of points. Origination points and discount points.

Origination points are the points you buy to compensate for the origination of the mortgage. These points may or may not be tax deductible depending when they are paid for. Origination points are bought to pay the lender the costs of making the loan.

Discount points are prepaid interest. When you buy discount points you are paying to have lower interest rates. These points are tax deductible. Discount points are also known as "the rate buy down". At closing you will be paying back the extra tax.

There are advantages and disadvantages to buying points. No one can tell you if it is right or wrong for you to buy them. There are a few factors to consider when deciding whether or not to buy points.
  • How long are you going to be in your house? If you are staying it your house for a short period of time following an international move, it might be better to go for higher interest rates and your closing costs will be cheaper. On the other hand, if you are staying in your home for a long time, the points can save you money in interest and lower your monthly payments.
  • Will you be able to afford the extra cost of the points at closing? Remember, for every point you buy there will be at least one percent of your mortgage added to your closing costs. Make sure you can afford that.
  • Is a lower interest rate going to help you? If you can make the payments with out having to lower your interest rate, then maybe it would be more logical for you to not buy points.
Buying points are an individual decision just as selling the points are up to the lender. It is up to the lender if they sell origination points and the discount points differ with each lender.