How Do Mortgage Points Work?
Wondering how mortgage points work? Learn how buying points can save you thousands of dollars over the life of your loan.
Bottom Line Up Front
- Buying points is a way of pre-paying on a mortgage, to lower your monthly payments.
- The more you can “buy down” your mortgage upfront, the more you’ll save over its term.
- One point equals one percent of your mortgage loan amount.
Time to Read
2 minutes
August 2, 2022
Buying a home is the largest investment most people will make in their lifetime. And, even though it doesn’t seem like much, saving a few thousand dollars can make a big impact when it comes to maximizing the value of your mortgage. Buying mortgage points—also called “discount points”—is a simple way to save thousands over the life of your loan. Here’s why it makes sense to buy points if you have the financial means to.
Lower Your Monthly Mortgage Payment
You may have heard of the concept of “buying down” the interest rate on a mortgage or perhaps paying up front for points. They’re one and the same. Both refer to the idea of using mortgage points to your advantage to lower the overall cost of buying a home. If you can pay more than the minimum down payment on a home, then look to purchase as many points as you can and still meet your savings goals.
A point is a fee equal to one percent of your mortgage loan amount. The point is typically included in your closing costs—it pays a portion of the future in advance. This is then reflected in the lower interest rate you’ll pay each month for the length term of the loan.
How Do Mortgage Points Work?
Still asking yourself, “How do mortgage points work?” Take a closer look through the infographic below and then find out how much you can save with mortgage points.
Understanding Mortgage Points
Disclosures
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.