When you buy a home, you tend to encounter a lot of financial jargon.
Whether you’re buying your first home, a move-up space or an investment property, there are countless new phrases that you might not recognize throughout your journey.
One of the most common may be mortgage (or discount) points.
Mortgage points can impact both the upfront costs of buying your home and your monthly payments. Here’s what you need to know:
Q: What are mortgage points?
A: They’re an optional fee that you can pay at closing. When you buy a “point” (or a portion of one), it reduces the interest rate on your loan — that’s why they’re also known as “discount points.”
Q: How do they affect mortgage interest rates?
A: Points can directly lower your interest rate. Typically, one point costs around 1% of your total loan balance. The exact amount it will reduce your rate varies depending on the market.
Q: Are they tax deductible?
A: Mortgage points are technically a form of prepaid mortgage interest, which is deductible on your annual taxes. But you have to itemize your returns to take the deduction.
Q: What is the breakeven point?
A: Your breakeven point is the month in which the savings of your mortgage points outweigh what you paid for them. If your points cost $5,000 and saved you $50 per month, for example, you’d break even in 100 months.
If you’re unsure whether mortgage points are the right move for you, get in touch today. We’ll discuss what’s right for your budget and goals.