 |
| 30 Yr Fix |
6.05% |
-0.01% |
| 15 Yr Fix |
5.60% |
0.01% |
| 1 Yr ARM |
5.29% |
0.00% |
| 5/1 ARM |
5.67% |
-0.06% |
| 30 Yr Tres |
4.56% |
-0.06% |
| Fed Prime |
5.00% |
-0.25% |
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Understanding Mortgage Points
Related Questions:
- What do points mean on a mortgage loan?
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Anyone who has ever shopped for quotes on a mortgage to find out just how much
it might cost has likely heard about mortgage points. Though
the term might seem abstract, the concept is actually quite simple. Mortgage
points describe certain charges to be paid in order to obtain a mortgage on
a home. Each mortgage point is a fee based on one percent of the total amount
of the loan.
Borrowers should bear in mind that there are two different kinds of mortgage
points-discount points and origination points-and that lenders do
not all charge the same amount for these different types of points. Discount
points refer to an amount of money paid to a lender to obtain a loan
at a specific interest rate. These points are like pre-paid interest on a loan
that a borrower takes out for a new home, with each point equaling to 1% of
the total principal amount of the loan. For example, if a loan is for $100,000,
one point is worth $1,000. Each point one purchases will therefore lower his
or her interest rate by some amount. Most borrowers will be able to decide how
many points they wish to purchase. However, they are usually limited to purchasing
around four points. The number of points a borrower chooses to purchase will
depend on how much he or she wishes to lower his or her interest rate. Discount
points are paid at closing, and, although buyers may not pay points on FHA or
VA guaranteed loans, sellers can. On most mortgages, either the buyer or seller
can pay the points; alternatively, the two parties can split the payment between
themselves. An important feature of mortgage points is that they are tax deductible
as a home mortgage interest if the deductions are itemized on Form 1040, Schedule
A.
Origination points are used to pay for the costs of obtaining
the loan in the first place. They are much less popular than discount points,
as they do not provide borrowers with any valuable benefits and are not tax
deductible. Borrowers are therefore better off trying to get a loan that does
not require them to acquire these kinds of points.
The decision to get mortgage points depends on a few key considerations. The
length of time one plans to live in the house and the amount of the down payment
one will be putting down are two such factors. A mortgagor who plans to live
in the house for many years would benefit from obtaining discount
points because they will lower the interest rates for the long term.
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By:
Anonymous
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11/3/2006
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