Buying a home can be a complex and trying process, particularly for first time buyers. This is especially true when lenders, agents and banks use verbiage that might be unfamiliar. Among these ambiguous terms is the phrase 'mortgage points'. While the expression might be foreign to the inexperienced, knowing about such points can make a big difference in the home buying process.
A point is used to describe an amount equal to one percent of the mortgage amount.There are two types of mortgage points: origination and discount. Origination points are how lenders are compensated and are generally not tax deductible.
Discount points are essentially interest that a buyer prepays on their mortgage. Doing so can lower a long term interest rate making a monthly payment more affordable. Just like the interest paid on a mortgage, the purchase of these points are also tax deductible.
Buyers are encouraged to speak to discuss mortgage points with their lender and fiancial advisor to find a loan that works for them. Today, conforming no-point 30-year fixed mortgage rates are averaging 4 percent while 15-year rates are near 3.25 percent.
Do you have a question for Real Estate & Mortgage Analyst Mehran Aram? Submit your queries about a home purchase, refinance, or reverse mortgage via Aramco.Biz, social media (#AramcoReport), or over the phone at (866) 381-8888 and your questions may be featured in an upcoming article.