Mortgage discount points are a one-time, upfront fee that gives the borrower access to a discounted mortgage rate. Essentially, it's prepaid mortgage interest. In general, one discount point will lower your mortgage rate by 25 basis points or 0.25%. The points are fees used to "buy-down" your mortgage interest rate. The cost of each discount point is equal to 1% of your total loan. Be sure not to confuse these points with "origination points," which are fees the bank charges to do your loan.
How Your Mortgage is Affected
As a rule of thumb, one discount point will lower your mortgage rate by 0.25%. However, two discounts points won't necessarily lower your mortgage rate by 0.5%. Different banks will offer different sets of discounts in exchange for you buying points. While your upfront costs will increase, you can see a significant savings in your monthly payment when you choose to purchase discount points. In addition, the costs of your discount points are tax-deductible, so there's also a tax advantage to purchasing discount points.
Every Lake of the Ozarks mortgage loan will have its breakeven point for buying points. If you plan to stay in your home beyond that point (and don't plan to refinance), then purchasing the discount points is probably a good idea. If not, the points can be a waste, so be sure to do the math to see if its the right move for you. Also, be sure to look at the mortgage rate alone, not the APR. The APR is a calculation that shows the long-term cost of holding a mortgage, but it assumes you'll hold your loan for 30 years, which is rarely the case.
Choosing to purchase discount points is a financial decision that varies from borrower to borrower. Talk to your favorite mortgage lender at the Lake of the Ozarks today to see what rates are available to you and go from there. For all your home financing needs, give us a call at 573-746-7211. Home loan rates are still at all-time lows, so act now before they start rising!
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Senior Loan Officer
NMLS #: 493712
4655 B Osage Beach Parkway
Osage Beach, MO 65065
Cell: (573) 216-7258
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.