Nothing says safety and security like home. Buying and owning and maintaining a home is central to the American Dream, and just about everyone wants, at some point, to own one. It's clearly the ideal place to settle down and raise a family. Given the current economic collapse, with its epicenter in the real estate industry, now is a very, very good time to buy.
If you're in the process of buying a home, or are thinking about it, then you're going to need a mortgage. One term that is critical to understanding how mortgages work is the "point." Understanding points can help you evaluate mortgages better in order to find the one that suits you best.
What Are Points?
Points are basically fees that you pay in order to get a mortgage. They are costs on top of the actual mortgage itself, and they are a reflection of the size of the mortgage. A point is 1 percent of the total loan amount. So, if you're getting a home mortgage loan for $100,000, one point is $1,000. Points are used in determining two further aspects of the loan process: loan origination points and discount points.
What Are Loan Origination Points?
Loan origination points are points charged by the bank, credit union, or other lending institution which is lending you your mortgage loan.
Again, mortgage points are distinct from the loan itself. When you pay your points you are still going to be paying interest on your mortgage loan, with interest. If you can, avoid a loan offer that has origination points attached to it.
What Are Discount Points?
Discount points are points that you can prepay. The more points you prepay, the lower your interest rate will be. So, you can pay these discount points up front in order to get a lower interest rate on your loan.
To learn more about points, origination points, discount points and other terms relating to buying a home and mortgages, be sure to speak with a financial adviser to get the best advice and the full story.
