What are points?

By
Mortgage and Lending with Cherry Creek Mortgage

Recently I have had several customers ask... what are points? I thought this was common knowledge... but here goes...

Points are interest paid in advance to reduce the rate on a loan. One point is equal to 1% of the mortgage amount. The general rule is that 1 point is worth 1/8 of 1% off the loan rate. The decision to pay points for a lower rate is based on how much the seller is willing to contribute to points, how long you plan to stay in the house, and how important lower payments are compared to higher closing costs. You will need to calculate the long-term value of points based on these factors, keeping in mind that points are generally tax deductible in the year paid.

 

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Rainmaker
178,871
Alan Langstone
Mount Pleasant, SC

Hi Rick,

I will always be amazed at what people don't know!

Just because I know it doesn't mean they know it, but you don't want to belittle them.

Mar 18, 2008 09:36 AM #1
Rainer
91,194
Jimmy McCall
JimmyMcCall.com - Cunningham, TN
The Ex-Mortgage Consultant
Rick, When I read your title I thought your were referring to AR points.  I thought a client saw your point total on a blog.  Now that is something to explain to a client.  I wanted to see how you handled it.
Mar 24, 2008 08:26 AM #2
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Rainmaker
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Rick Kellow

FHA & Reverse Mortgage Expert
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