Can someone tell me about points? (the mortgage kind)

[LadyyRedd]

Can someone explain to me how they work?

Kimya

 

[jenks0718]

You are paying 1% of the mortgage amount per point up front at closing to buy down your loan. It can get you a lower interest rate, but more money out of pocket up front.

 

[FreshTressa]

It is 1% of the total mortgage price and reduces the interest rate by 1/4 of a point.

It usually takes about 5 years to break even.

 

[LadyyRedd]

What do you mean that it takes 5 years to break even? That it would take me 5 years to pay the amount through the mortgage itself if I didn't pay the point?

Kimya

 

[FreshTressa]

Yes, so if you move or refinance, you lose money, but it is worth it if you plan on holding the mortgage for more than 5 years.