1. What Are Mortgage Points?

Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. Each point costs 1% of your mortgage amount and typically lowers your interest rate by 0.25%.

2. How Does the Calculator Work?

The calculator uses the mortgage points formula:

Where:

• \( Loan \) — Total mortgage loan amount (USD)
• \( Points \) — Number of points being purchased (each point = 1% of loan amount)

Explanation: The equation calculates the upfront cost of purchasing mortgage points based on your total loan amount.

3. Importance of Calculating Points Cost

Details: Understanding the cost of mortgage points helps borrowers decide whether paying points makes financial sense based on how long they plan to keep the mortgage.

4. Using the Calculator

Tips: Enter your total loan amount in USD and the number of points you're considering purchasing. The calculator will show the total cost of those points.

5. Frequently Asked Questions (FAQ)

Q1: Are mortgage points worth it?
A: It depends on how long you plan to keep the mortgage. Points make sense if you'll stay in the home long enough to recoup the upfront cost through lower monthly payments.

Q2: How much does one point lower the interest rate?
A: Typically 0.25%, but this can vary by lender and market conditions.

Q3: Can points be financed?
A: Yes, you can usually roll the cost of points into your mortgage rather than paying upfront.

Q4: Are points tax deductible?
A: Points paid on a purchase mortgage are generally deductible in the year paid, while points on a refinance must be amortized over the life of the loan.

Q5: What's the difference between discount points and origination points?
A: Discount points lower your interest rate, while origination points are fees charged by the lender for making the loan.