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Mortgage points, the upfront free a buyer can pay to lower their monthly interest rate, are very common, but often misunderstood. In this video, David Talbott, a Mortgage Advisor with Samuel Scott Financial Group, shares the basics of how Mortgage Points impact a home loan. Find out how to calculate the cost of points and how to know if purchasing mortgage points will add value to your home loan.

A mortgage point is equal to one percent (1%) of the total loan amount. For example, if you are purchasing a home that is $400,000, and you would like to purchase one mortgage point, you would pay $4,000. For two points, it would cost $8,000. A person who paid one point upfront on their loan would most likely have a lower interest rate than a buyer with a no point loan. Because of the money that can be saved in interest rates and lower monthly payments, the average homebuyer will generally pay between 1-2 points.

There are two main types of Mortgage Points: Origination Points and Discount Points.

Origination points are the compensation actually paid to the mortgage advisor, and are typically negotiable. These are the actual points being used to pay for the costs of obtaining a loan.
Discount points are points that are paid directly to the bank and will actually buy down the interest rate. With every point paid, the borrower will usually see the interest rate reduce by 1/4 to 3/8 of a percent. Once again, the more discount points that you pay, the lower the interest rate will be on the loan.
By paying for mortgage points, you are lowering the interest rate and the monthly payment. You also have the added benefit of a tax deduction when you pay points. Because points are a type of prepaid interest, it can be deducted as home mortgage interest, using FORM 1040, SCHEDULE A to itemize deductions. Talk to your Mortgage Advisor or CPA for more advice about these deductions.

There are many factors to consider when decided whether or not mortgage points make financial sense for your home loan. The two most important topics to discuss with your lender are...Read MORE by Clicking HERE!

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