Financing in 48066>Question Details

Pat Gary, Home Buyer in Fraser, MI

what are points?

Asked by Pat Gary, Fraser, MI Thu Mar 29, 2012

I notice the mention of points as I am considering refinancing my mortgage. What exactly are points?

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Good Answer Alain,
This is what most of my clients purchase points for. It does however takes several years to pay off. Best Regards.
0 votes Thank Flag Link Fri Mar 30, 2012
In addition to what was said already, points can be used as a write-off HOWEVER, you need to check with your accountant to see what the current tax laws allow. For instance, when I purchased my home, I was able to write off the entire amount of the points I would have paid in the year I purchased my home, thus making the actual cost much lower (we love tax deductions, right?) however on a refinance, those same points were NOT wrote off entire in that tax year, instead they were to be spread out through the term of my loan, thus negating the benefit of paying points on refinances.

I tell my clients, "listen, if you think rates will never ever get lower and you plan to stay in this home at least X months (the breakeven period I previously discussed with them), then maybe paying these additional fees (points) will be worth it but if you have any doubt about your future plans, it may be better to not pay the points and put it in another investment vehicle that'll yield a higher return instead". Since I'm not a licensed financial advisor,I can't tell them where to put their funds but it's a conversation I have with my clients to get them thinking about how to best maximize their earning/savings potential.
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0 votes Thank Flag Link Thu Mar 29, 2012
Points are usually bought to lower your interest rate on your mortgage. For example say your lender is offering you a loan with an interest rate of 5.125%. If you bought 1 point this would lower your interest rate usually by 0.125% and usually cost you 1% of the loan amount ($1,000.00 for a $100,000 loan or $2,000 for a $200,000 loan) so now your interest rate for your mortgage loan would be 5% instead of the original 5.125%.
0 votes Thank Flag Link Thu Mar 29, 2012
Points are what lenders and mortgage brokers charge in order to setup the loan. One point is 1% of the loan amount. Different lenders charge different points so make sure that you know exactly how much you are paying.
0 votes Thank Flag Link Thu Mar 29, 2012
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