When you apply for a mortgage, the interest rates you’re offered are based on your qualifications, loan terms, the current market, and other factors. Your loan’s interest rate will affect your monthly payment amount and will have a major impact on the overall cost of your loan. Those who plan to keep their loan for a long period of time and are looking for a lower interest rate may opt to pay for mortgage discount points.
What are mortgage discount points?
Mortgage discount points allow you to pay an upfront fee as part of your closing costs in exchange for a lower interest rate. Points are calculated as a percentage of your loan amount where one point is equal to 1% of your loan amount and can be applied in fractions, meaning you can pay 0.75 or 1.125 points, for example. The amount that your interest rate will be reduced based on your mortgage discount points depends on the type of loan, the current market, and the specific lender.
How can you use mortgage discount points?
Mortgage discount points can provide a long-term financial benefit. While the upfront cost of discount points may not seem worth it in the short-term, the reduced interest rate that discount points offer can significantly lower the overall cost of your loan. If you can afford the additional costs at closing, and plan to keep the loan for a long period of time, opting for mortgage discount points could end up saving you money over time. If you’re ready to start exploring your loan options, you can get started here.
