Fees that are paid directly to the lender at closing are commonly known as mortgage points. They are paid in exchange for a reduced interest rate. Mortgage points are among the many fees that are associated with mortgage loans. You will get a discounted interest rate when you buy mortgage points. Borrowers always purchase mortgage points so as to prepay interest on their loans. This ensures that the interest rates charged on loans is reduced in a great manner. They then end up their loan in less amounts. Another advantage of mortgage points is that they enhance lower payments. This is so because the interest rates are reduced in a great percentage. The borrower will enjoy benefits for many years but paying the loan will be completed in fewer years. This will increase the monthly savings on the part of the buyer.
Another advantage of mortgage points is that they reduce the total cost of the home. In the long run the savings are highly substantial. Discounted interest helps in lowering the overall amount. In this case you will be saving more over the life of that loan. Another benefit of mortgage points is that they are tax deductible. They will always be tax deductible if you apply them to the cost of obtaining the loan. Buyers who are financially strained can find this very beneficial. During the first year of ownership this can be a major problem. In this case you should consult a tax professional. This will help you understand whether you will enjoy a tax benefit or not.
Mortgage points can be beneficial to you if you choose a fixed rate mortgage. This is in a case where you are planning to own the home after you have reached your break-even period. This is normally the period you will take to recover the amount of money you spent in buying points. In this case you will be saving a lot of money over your loan. If you are planning to own the home for a long time you will save more money on interest rates.
Another advantage of mortgage points is that they lower your monthly mortgage payments. Before buying mortgage points always ensure that you have enough cash. This includes down payment, closing costs and reserves that you will need to spend after you have taken a mortgage loan. You can save a lot of money from refinancing your mortgage. In this case you can save even more when you pay extra for discount. You will be able to benefit a lot from simply buying mortgage points when you decide to take a mortgage loan.