What are Mortgage Points

The Fees a borrower pays a lender to lower the Interest Rate is known as Mortgage Points. Each Mortgage Point costs one percent of the loan amount and typically one Mortgage Point lowers the Interest rate of the borrower by .25% depending upon the lender. For example, on a 500,000 loan with an Interest Rate of 4.75%, one point would cost the borrower 5000.00 and would reduce the Interest rate to 4.5%. The process is also referred to as a Buy Down or Purchasing Mortgage Points. The buy down interest rate varies by the lender.

The Mortgage Points are paid at closing and are listed on the Loan Estimate (LE) and the Closing Disclosure (CD). Buying Down or Purchasing points may not work for certain borrowers. For example, if you purchase two points at closing and sell the house after three years, a Buy Down may not make sense.

In order to arrive a number for a Break Even point, (to determine how long it would take you to recover the cost of buy down), divide the total amount paid for buy down by the amount saved on the monthly payments to arrive a number for the number of months to break even. Example, if you paid 5000.00 for the buy down and save 60.00 a month, 5000/60= 83 months to break even.

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