When you take out a mortgage loan, you’ll likely encounter two types of “points” — discount points and origination points.
Though they sound similar, these “points” actually have two distinctly different purposes. It’s important to understand both — as well as what they mean for both your short-term and long-term mortgage costs — before you get to the closing table.
Origination points, also sometimes just called “origination fees,” go toward the lender’s costs to produce your loan. They help cover processing your application, underwriting the loan and, ultimately, closing your mortgage. These costs vary from lender to lender, which is why it’s always important to shop around and compare fees before choosing who to get your mortgage from.
Discount points are an optional type of point that can help you lower your mortgage rate. Often referred to as “buying down your rate,” purchasing a discount point would allow you to lower your loan’s interest rate by a set percentage, depending on the current market. Discounts points are essentially prepaid interest and cost 1 percent of the total loan balance (for example, $2,000 per point on a $200,000 mortgage.) Your points are due at closing, along with your down payment, origination points and other closing costs.
Though buying down your rate can help you save on interest, it’s not the right move for everyone. If you’re only planning to stay in the home for a few years, you may not save enough in interest to make up for the costs of the points themselves. If you’re in it for the long haul, though, paying discount points can have big financial benefits — including a much lower monthly payment.
What Points Will You Pay For?
At Embrace Home Loans, we work with you to find a mortgage loan that fits your needs, homeownership goals and budget. We’ll breakdown several options — including those with and without discount points — so you can make the most informed decision possible for your family. Have more questions about points or how they work? Want to learn more about the origination points we charge to our borrowers or how they measure up to other mortgage companies? Then connect with one of our friendly loan officers today. We’re here to help every step of the way.