All About Mortgage Discount Points: What Are They & How They Impact Your Monthly Mortgage Payment
What are mortgage discount points and should you pay them?
There are two types of points. There are origination points and discount points.
Origination points are the points a lender charges to do business with them. There is no benefit to the consumer to pay these points. Discount points are the points a borrower can pay to lower their interest rate for the life of the loan. One point equals 1% of the loan amount; however, you do not always need to pay a full point in order to get a lower rate.
Discount points can provide you with a lower interest rate for the duration of the loan term. In some markets, like the market we are in today, they can substantially lower your rate and save you a lot of interest over the life of the loan and even in the short-term. As they do provide you with a lower rate, you will also have a lower monthly payment.
They can be beneficial for anyone who can pay them upfront. It is important to note that both the cost of the discount points and how much they, in turn, will lower your rate can vary daily. They are beneficial for anyone who will realize the savings by being in their home/mortgage longer than it takes to recoup the upfront expense.
