What Are Home Loan Points?

by Ethan Hunter

Most people sort of stare at me when I talk about home loan points. Why? Well, the majority of those I come into contact with - even those that own their own home - are actually not aware of what home loan points are. But home loan points can help you do so many things, and in the end, pay less each month on your mortgage payment.

Okay, we will discuss what home loan points are, as well as the many advantages they offer specifically to someone wanting to buy a home.

Home Loan Points 101

The basics are easy to understand, especially if you’re a quick learner. Simply put, home loan points are something that you purchase when you’re getting a mortgage to lower your interest rate.

In other words, look at home loan points as being equal to 1% of your mortgage loan. Therefore, if you were going to take out a mortgage loan of $200,000, you would have $2,000 in points. Often, home loan points can also be purchased, which help by reducing your current interest rate.

One thing people want to know is if home loan points are worth the fuss, making a real difference or are they more hype than anything else.

Good questions, actually, and questions you can’t find answers to easily.

First, if you want to know if home loan points are actually worth it.

This is what a lot of home owners struggle with because they are not sure if they can afford the extra money and if it will really help in the long run.

The answer to this is that it depends on your situation. In addition, the answer would be based on the type of mortgage loan, as well as the bank or lending institution being used. More importantly, you need to determine if you have extra funds to buy points and if so, what would the overall savings be.

If you’re going to be saving more than $40 a month, and you have the extra money to put down on points, you should seriously take your home loan points into mind. The savings can greatly outweigh the disadvantages, and upfront payments.

Then, you might ask why home loan points exist in the first place.

Well, remember that in addition to helping you with paying a long mortgage loan, they also provide you with many opportunities. For example, you would have the chance to pay more now while securing a lower interest rate. However, even if you find you do not have extra funds, you can still secure a good loan.

You benefit, and the loan company benefits, because they get more money up front, something that’s important to them. Most of the time, though, loan companies leave home loan points as optional.

The Bottom Line Is

The bottom line is that home loan points can help you, but you don’t need them. It’s up to your situation, and extra money - so choose wisely, and carefully.

About the Author:

Home loan points can help you do so many things and in the end, pay less each month on your mortgage payment. Don’t be surprised! Learn about home loan points - and how can they benefit you, the potential home owner? Low Income Home Loan