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Investopedia Says: For example, on a $200,000 loan, each point would cost $2,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $4,000 and will result in an interest rate of 4.50%.
Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible. Score A Cheap MortgageLearn how to pay less for your home in the long run, or save in the short run. Mortgage Points - What's The Point?Go beyond interest and find out how mortgage points affect your taxable income. A Tax Primer For HomeownersIt starts with knowing your choices as well as your price range. We show you how to get there. 4 Steps To Attaining A MortgageLearn the factors to consider when comparing the different programs offered by various lenders.
锘緿iscount Points
Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation.
A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. Discount points are tax deductible only for the year in which they were paid.