What Every Future Home Buyer Should Know About Mortgage Points
Are you planning to buy a home soon, and will need to use a mortgage to secure your financing? If so, it will help to better understand the process and everything it entails. One part of a mortgage you will certainly hear about are points. There are two kinds of points that apply to your mortgage that you will need to be familiar with.
Mortgage Origination Points
When your mortgage lender talks about origination points, these are the points that you pay for that essentially pay your lender for doing all of the work of processing your loan. Paying for more points will result in a higher loan origination cost. Thankfully, these origination points can be negotiated. If you are between multiple lenders, as you get closer to selecting a final lender, you can use origination points as a bargaining tool. See if one lender will beat the other by charging you for fewer points, which will save you money on your home loan closing costs.
One thing to be aware of is that it is possible to get a loan that doesn't have any origination points associated with it. This is because lenders make money on the interest of your loan or selling it to the government later on. They lender still makes money by offering you a loan with no origination points, so do not feel bad for trying to negotiate as low as possible.
Mortgage Discount Points
Are you planning on staying in your home for a while? It may be worth buying discount points. This is money that you pay up front in exchange for a lower interest rate. What you need to know before buying any discount points is what the break even point will be for purchasing them.
For example, if you were to spend $1,000 on mortgage points to lower your interest rate, then you must figure out what that lower rate saves you per month. Divide that figure by $1,000 to determine how many months it will take to break even. If you see yourself staying in the home longer than that amount of time, then it is worth it to buy mortgage discount points.
Still have questions about mortgage points and new home purchasing? Reach out to your lender to see what additional information they can provide you. They will be able to supply specific information about how they apply to your home mortgage