What Does “Buying Points” on a Mortgage Mean?
If you’ve been shopping for a home for any length of time, chances are you’ve learned a bit about mortgages. One thing that comes up very often when you’re shopping for a mortgage is something called mortgage points or discount points. Understanding what these are and what they do, can help you make a smart decision when you sign the papers and have to pay your mortgage each month.
Mortgage points are, put simply, fees that are paid to the lender at closing. Since you pay money up front, it is called buying points. In most cases, one point costs about 1% of your mortgage amount. So, for instance, if your mortgage were $200,000, one point would cost $2,000. Basically, you are paying interest up front in exchange for a lower interest rate over the life of the loan.
So, is buying points a smart decision for the average homeowner? In reality, it is impossible to judge this without knowing a bit about your situation. In most cases, the longer you will own the home, the more points will save you on interest over the life of the loan. So, if you plan to move within a few years, it may not make sense to spend that upfront cost. However, someone planning to live in a home for many years, or even decades, will find that buying points makes sense.
Buying points on a mortgage is a rather complicated decision, so it is always best to discuss your plans with a qualified mortgage expert. If you would like to learn more about different ways you can save money when buying your home, reach out to us at Liberty Financial in Louisville Kentucky today. Our team is eager to help you achieve your dreams.