What are mortgage points and should you buy them?

2: Lower monthly payments

Because mortgage points are a way to lower your interest rate, you will be forced to pay less in interest every month. Therefore, your monthly payments will drop.

3: Save on your taxes

Remember: Interest on your mortgage is tax-deductible. Since mortgage points are technically pre-paid mortgage interest, you will likely be able to deduct the cost of those mortgage points on your taxes. Before making any assumptions on this benefit, however, it is important to verify your situation with a qualified tax expert.

How do mortgage discount points differ from mortgage origination points?

As mentioned, mortgage discount points are essentially a form of pre-paid interest that help you lower the interest rate on your loan. Generally, your interest rate will be reduced by 0.25% per each mortgage discount point you purchase.

You can lower your monthly payment by lowering the interest rate on your mortgage. Always remember that this also means an up-front payment. And the longer you want to live in your house, the more you will benefit from purchasing points.

Mortgage origination points

Mortgage origination points are another kind of mortgage points, but are fees paid to the lenders to originate, review and process the mortgage. Generally, origination points cost 1% of the overall loan. For example, you would have to pay just over $4,000 on a $250,000 mortgage if the lender charged 1.5 origination points.