Wednesday, February 07, 2007

What are Mortgage Points?

One point is like to one percent of the loan amount. Mortgage points are considered by the Internal Revenue Service to be a word form of pre-paid interest. This agency that mortgage points can be deducted from taxable income. Most lenders necessitate that a borrower wage 1 or two points at shutting clip in exchange for a lower mortgage rate (lender's APR would remain the same).

Points are basically finance charges you pay the lender. One point bes 1% of the loan amount (for example, one point on a $75,000 loan is $750). The sum of money number of points a lender charges depends on market statuses and the loan's interest rate.

When you pay "points," you pay interest in a lump sum upfront to get a lower rate on your fixed rate mortgage. Each point costs 1% of the mortgage amount. The more than points you pay, the lower your mortgage rate. So, which is the best for you? More points and a lower rate? Or fewer points and higher rate? To decide, you need to consider:

(1) Whether you can afford to do the upfront payment now for points.

(2) The length of clip anticipate to have got the mortgage. The longer you be after to have got got your mortgage, the more than it do sense to pay for points now because you'll have a long clip to profit from the lower rate. Answer the inquiries below and we'll counsel you on what's best for you.

Lenders often talk in terms of basis points or hundreths of a percentage. Some lenders use points becasue it sounds small but as a borrower you can be savvy if you know what your doing when you negotiate for a loan. Looking at half and quarter points is something most lenders will do to save a deal and as a borrower you should never need a loan more than the lender otherwise you'll end up paying way more than you need too, right?
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