Are Mortgage Points Worth the Cost?

By Dave Jansen, Lathrup Village Branch Manager

Paying mortgage points to get a lower rate on a loan is almost always a losing proposition. Most homeowners don’t keep their mortgages long enough to do more than recoup the up-front cost of paying points. A point is 1% of your loan amount. If you take out a $250,000 mortgage, 1 point equals $2,500.

Before we go any further, let’s look at why you would buy mortgage points and how you can use them. Mortgage points are also called discount points, and are essentially “points” you can buy during the mortgage process to help you get a lower interest rate. Each point you buy reduces your mortgage interest rate by a specified fraction of a percent, because you’re basically pre-paying a portion of the interest on your loan. Pretty enticing, right? After all, you want to make sure your home loan is as affordable as possible, and mortgage points seem like a surefire way to save money over time.

While you can certainly save money by purchasing mortgage points, that’s not always the case. Sure, buying points lowers your interest rate by a small amount, but it can take a while for the savings to add up. Some lenders will do the math with you, showing you how much you’ll save over the 15 or 30 years of your mortgage, but what are the chances you’ll stay in your house for the entirety of your loan? Perhaps you’ll want to upgrade to a bigger house or a different neighborhood after a while, or you might face an unexpected move for work or family.

If for any reason you think you might sell before paying off your home loan, chances are you won’t reap the full benefits of the points you buy.  For more information, contact our team at 877.312.9033.