What Are Mortgage Points?

When you are buying a new home, or considering buying one with a company such as Nations Lending Services, there are many terms and concepts that may be unfamiliar. One such term might be "points" in relation to interest rates. Mortgage points can be a way for lenders describe mortgage payment methods and mortgage discounts. Many types of mortgage points equal to one or two percent of the total loan and can be used to pay interest or closing costs. Purchasing additional points early in the mortgage process can help a homebuyer bring down the 30-year interest rate of their mortgage by increasing earlier payments to decrease long-term interest on the home loan.

There are two types of mortgage points. Discount points can reduce a long-term interest rate by paying for a certain percentage of interest ahead of time. These points are tax deductible. Another type of mortgage points is called origination points. These points can be used to pay for closing costs and cannot be deducted from taxes. These points are paid during the closing process and the lender often determines how many points they are willing to accept. Lenders such as Nations Lending Services can advise you on the best type of points for your mortgage loan.

Mortgage points maybe one of the several options to decrease long-term interest and costs on your home mortgage. As each home loan is different and lenders have different requirements, you should weigh the costs and options available to you at the advice of your home lender. Those who plan to live in a home for most of the period of their mortgage might see the most benefits from using mortgage points. As more money is paid into your long-term home mortgage, the interest over time will decrease and your financial burden will be less over the home loan period. Another option might be to use an investment fund to build interest on the money you are saving by not using initial mortgage points. This course of action can be particularly helpful for those who may live in their homes for less than ten years. Paying a larger down payment instead of using mortgage points can also be a way to decrease interest over time and may be less expensive over a 30-year mortgage. Consulting a home loan provider such as Nations Lending Services or making an appointment at one of their local mortgage branches can help you make the best decision for your home loan.