Points allow you to make a trade-off between your upfront costs and your monthly payment. By paying points, you pay more up front, but you receive a lower interest rate and therefore pay less over time. Points can be a good option if you plan to keep your loan for a long time.
One point is equal to one percent of the loan amount. For example, one point on a $100,000 loan is one percent of the loan amount, which is equal to $1,000. Points don’t have to be round numbers: you can pay 1.375 points ($1,375), 0.5 points ($500), or even 0.125 points ($125). Points are paid at closing and added to your closing costs.
Paying points lowers your interest rate, compared to the interest rate you could get with a zero-point loan from the same lender. A loan with one point should have a lower interest rate than a loan with zero points, assuming both loans are offered by the same lender and are the same type of loan. The same type of loan with the same lender with two points should have an even lower interest rate than a loan with one point.
The items are listed in your Loan Estimate and Closing Disclosure on page 2, Section A. By law, the items listed in your Loan Estimate and Closing Disclosure must be connected. at a discounted interest rate.
The amount your interest rate is reduced depends on the specific lender, the type of loan, and the mortgage market in general. Sometimes you receive a relatively large reduction in your interest rate for each point paid. Other times, the interest rate reduction for each point paid may be less. It depends on the specific lender, type of loan, and market conditions.
2023-11-21 02:58:53
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