All About Home Loan Points

Most people sort of stare at me when I talk about home loan points. Why? Well, the majority of those I come into contact with - even those that own their own home - are actually not aware of what home loan points are. But home loan points can help you do so many things, and in the end, pay less each month on your mortgage payment.

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

The Basics of Home Loan Points

The basics are not hard to understand if you are a fast learner. Home loan points are something that you buy so that you will get a lower interest rate on your mortgage.

In other words, look at home loan points as being equal to 1% of your mortgage loan. Therefore, if you were going to take out a mortgage loan of $200,000, you would have $2,000 in points. Often, home loan points can also be purchased, which help by reducing your current 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 what a lot of home owners struggle with because they are not sure if they can afford the extra money and if it will really help in the long run.

The answer to this is that it depends on your situation. In addition, the answer would be based on the type of mortgage loan, as well as the bank or lending institution being used. More importantly, you need to determine if you have extra funds to buy points and if so, what would the overall savings be.

If you are going to be saving as least $40 a month then you should take home loan points into consideration. The savings will outweigh the disadvantages and the payments that you may have upfront.

Why are these home loan points there anyway?

These are there really to help you pay for a better long term loan and to let you have a choice. You may pay more up front, but you will have a lower interest rate and you don't have to worry about it. You'll still get a decent loan.

You will benefit and the loan company will to because they are getting more money up front and that is important to them. Loan companies will leave home loan points as just an option.

Summary

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.