What is a Point?

Points reduce interest rates. A point equals 1 percent of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7 percent, but come with a charge of 1 point, or $1,500. A lender may charge 1, 2 or more points.

	Discount Points: Are prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically pay from zero to 3 or 4 points, depending on how much they want to lower their rates.

How do you decide whether to pay points, and how many?
As interest is generally tax deductible prepaid interest likely follows. Consult with your tax advisor for your situation. If you plan to stay a while, it may be worth reducing the interest rate by paying more points. If your ARM loan is about to move up (recast) consider refinancing to a fixed rate using accrued equity to buy down your "fixed" payments to match what you were already paying monthly on your old mortgage.

By the numbers ...
A lender might offer a 30-year fixed mortgage of $265,000 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $1,589. Paying 1 point at close may bring the interest rate down to 5.5 percent, with a monthly payment of $1,504. The savings difference would be $85 per month or $1,020 per year.

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Call Greg Zaccagni @ 630-818-6856

Posted Thursday Jul 19

( 07/19/07 08:47PM ) — Pamela Williamson Team Clayton, Missouri Real Estate

Great blog! These are things our clients need to know.

( 07/21/07 08:17AM ) — Lizette Fitzpatrick - Broker-Realtor® Kentucky Homes - Horse Farms

Hi Greg! Thanks for the comment on my blog. I liked how you explained points in simple terms that everyone can understand. Do you mind if I use your definition in my next newsletter(With credit to you)?