Home Loan Points

Most people have no clue what home loan points are. In fact, even current homeowners find themselves stumped by this term. However, as you will discover in this article, home loan points can actually be highly beneficial to you, allowing you to pay less money each month on your mortgage.

What are home loan points and how do they help a homeowner?

Home Loan Points 101

It is actually quite easy to understand home loan points. In a nutshell, these points help you get a lower interest rate when it comes time for you to purchase a new home.

Home loan points are basically 1% of your loan - so, if you’re taking out a loan of 100,000, one point would be about $1,000. Many times, you can buy these home loan points, and lower your interest rate.

But… are home loan points really worth it? Do they make that much of a difference? Why are they there at all?!

These questions are all good ones that you can’t find answers to very easily.

Are home loan points really worth the time?

This is the question that home owners struggle with. Can they afford the extra money… and is it really worth it, in the long run, to hassle with any sort of points?

Well, it depends on your personal situation, including the type of loan, and the loan company you’re looking into. The biggest question you need to ask yourself is this - do I have the extra money to spend on these points, and how much do I save?

For instance, if you find that your monthly mortgage payment will go down by as much as $50 and you have some extra money available to buy points, then home loan points could be highly beneficial. In this case, while there is a little money upfront, the long-term savings are tremendous.

Then, you might ask why home loan points exist in the first place.

Well, remember that in addition to helping you with paying a long mortgage loan, they also provide you with many opportunities. For example, you would have the chance to pay more now while securing a lower interest rate. However, even if you find you do not have extra funds, you can still secure a good loan.

Additionally, while you enjoy many benefits so does the loan company. The reason is that they get the money you pay upfront for the home loan points, which is why they are in business in the first place - to make money. Typically, these companies make the points an optional thing.

The Bottom Line Is

The bottom line is that home loan points can help you, but you don’t need them. It’s up to your situation, and extra money - so choose wisely, and carefully.