What Are Mortgage Points? – LoanLove.com Helps Answer This Question In A New Video

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A new video post from Loan Love helps explain the ins and outs of mortgage points and whether or not borrowers should pay them.

LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. A recently posted video on LoanLove.com continues to help borrowers get the best loan deals by answering the question “What are mortgage points; and should you pay them?”

The video says: “So you just finished running the numbers -- probably more than once -- to figure out the best mortgage rate and terms for you. Your work is all done, right? Actually ... no. There's another step you can take that could save you some money down the road or maybe make closing costs a little more manageable - and that's looking at points.”

The video explains that, when talking about mortgages, a “point” is equal to one percent of the mortgage. So, if for example, the mortgage is $300,000, one point would be equal to $3,000. When a borrower pays points, they are actually paying off some of the interest on the loan ahead of time, and this helps them to get a lower rate for their mortgage. Loan Love explains that paying one point will usually decrease the interest rate by about a quarter percent, although this can vary from lender to lender, and lower rates usually mean that points are worth less, sometimes as low as one eighth of a percentage point. However, this can still be a great idea for some people who have the money on hand and would rather pay smaller monthly payments down the line. On the other hand, it might not make sense for those who are planning to resell shortly, as they would end up losing out.

The Loan Love article that the video refers to offers a lot more detailed advice on mortgage points and even explains about negative mortgage points, which could be a good option for those who do not have enough to cover high closing costs on their loan. The article says:

“…there are also so-called negative points, which may occur when a buyer decides to pay a slightly higher interest rate in exchange for a credit toward closing costs. Most buyers choose this option when they find closing costs a little too high to handle. The biggest disadvantage here is that paying a higher rate over time – even a slightly higher rate – can add up to a significant increase in the total amount of interest that’s paid. Consider a $200,000 loan at 4.5%. Over a 30-year term, you’d end up paying $164,813.42 in interest. Now say you decide to take a credit toward your closing costs in exchange for an increase in the interest rate to 4.8%. At that rate, after 30 years you would have paid $177,759.06. That’s a difference of $12,945.64. Depending upon the credit you’re receiving and how difficult it would be for you to pay closing costs upfront, you may or may not consider that to be a good deal.”

The video ends by saying: “The best way to really understand points and whether they make sense for you is to use a calculator like the one on LoanLove.com. Or, you can ask your lender how paying points would change your monthly payments and the interest you'll end up paying.”

For more information on mortgage points, please view the video or go to LoanLove.com for the full mortgage points guide.

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Kevin Blue
Loan Love
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