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LSDefine
Simple English definitions for legal terms
mortgage point
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A quick definition of mortgage point:
Term: Mortgage Point
Definition: A mortgage point is a fee paid upfront to a lender in exchange for a lower interest rate on a mortgage loan. It is like a discount on the interest rate that you pay for your mortgage. For example, if you pay one mortgage point on a $100,000 loan, you would pay $1,000 upfront, but your interest rate might be reduced by 0.25%. This can save you money in the long run, but it is important to consider whether the upfront cost is worth the potential savings.
A more thorough explanation:
Definition: A mortgage point is a fee paid upfront to a lender in exchange for a lower interest rate on a mortgage loan. One point is equal to 1% of the total loan amount.
For example, if you are taking out a $200,000 mortgage and the lender offers you a rate of 4% with no points, you could choose to pay one point ($2,000) upfront to lower your interest rate to 3.75%. This would save you money on interest over the life of the loan, but would require a larger upfront payment.
Another example would be if you are taking out a $500,000 mortgage and the lender offers you a rate of 3.5% with no points. You could choose to pay two points ($10,000) upfront to lower your interest rate to 3%. This would also save you money on interest over the life of the loan, but would require a larger upfront payment.
The examples illustrate how paying mortgage points can be a way to save money on interest over the life of a mortgage loan, but requires a larger upfront payment. It is important to consider your financial situation and how long you plan to stay in the home before deciding whether or not to pay mortgage points.