Mortgage Help   Mortgage Rates Real Estate Credit Foreclosure Tax Mortgage Rates Mortgage Basics Chapter 1: How much house can you afford? Homeownership Should You Buy or Rent Summary   Chapter 2: Adjustable-rate mortgages ARM and a fixed-rate mortgage Fixed-rate mortgages Understanding the key elements Which type of lender is right for you? Other types of mortgages Subprime Summary   Chapter 3: Your credit score Down Payment How lenders set rates Low down payments Mortgage insurance Your mortgage payment Mortgage Points Summary   Chapter 4: The good faith estimate Inspection and Insurance Necessary paperwork for a buyer Other lender paperwork Paperwork and fees Prequalification and preapproval Special circumstances Summary   Chapter 5: Ten questions to ask Turned down for a mortgage Underwriting What lenders ask Summary   Chapter 6:  Understanding the closing process Escrow Summary   Chapter 7: When your mortgage is sold Avoiding foreclosure Paying ahead Payment changes Refinancing Removing mortgage insurance Summary Points When comparing different mortgages, many lenders will give you quotes that include both loan rates and points. What is a point? A point is a fee that is charged at closing that is equal to 1% of the loan amount. For example, a 30-year, $150,000 mortgage will have a rate of 7%, but come with 1 point, or a fee of $1,500. Lenders can charge as many points as they want to. There are two different types of points: discount points and origination points. Discount points Discount points are simply prepaid interest on a mortgage. The more points you pay at closing, the lower the interest rate on the loan. Borrowers are usually allowed to pay zero to four points, depending on how low they need their rate to be. Discount points paid at closing are tax deductible. Origination points Origination points are charged by the lender to cover the cost of the loan or to make a profit. They are not tax deductible and do nothing for you, the borrower. Most buyers should avoid origination points, unless they are necessary to lower the interest rate to a satisfactory level. Should you pay points? Whether or not you should pay points depends on a variety of factors. You have to look at how much money you have available to spend up-front, at closing, and how long you plan to own the property. When you pay discount points, you are reducing your interest rate. If you plan on owning the home for a long time, the reduced interest rate may be worth paying the points. You will have less of a monthly payment with lower interest rates, giving you extra money to invest elsewhere. You have to look at your situation. If you need the lowest possible closing costs, you can choose to pay no points for your mortgage. How points work You are offered a 30-year fixed-rate mortgage for $165,000 at 6% interest with no points. The monthly mortgage payment of principal and interest is $989. If you choose to pay two points at closing, $3,300 extra, you could reduce the interest rate to 5.5% and reduce the monthly payment to $937. The savings difference is $57 each month. Keep in mind that it would take you 64 months to make up for the $3,300 spent in advance for the lower interest rate. If you own the house longer than 64 months, you will save money by paying points.