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Benefits of Mortgage Points That can be Gained by Borrowers

Mortgage loans come with various costs for both their borrowers and lenders. One of these charges are mortgage points. The points can be classified into two, either origination or discount points. Every point is equal to 1 percent of the loan amount. The origination points are mostly of benefit to the lender, but the borrower can gain several benefits from discount points as well. This article provides some advantages that a borrower can have by having these mortgage points.

The borrower can achieve a discounted interest rate for their mortgage. Purchasing discount points serve to prepay the interest payable on the borrower’s loan. This action discounts or reduces the amount of interest paid on loan. The general percentage that can be accrued to a buyer purchasing one mortgage point on the rate of interest to be paid is 0.25 percent. The specific rate of reduction in interest rates is however dependent on the lender and the marketplace in which you obtain your mortgage. The reduced rate of interest is a beneficial thing to the borrower because it leads to them paying lower for the loan than what they would have paid without the points. The decrease in the interest rate paid is more likely to reflect in the long-term when the comparison is made between what would have been paid and what is paid. Find more info. on this page about the conditions that affect the extent of the effect of mortgage points on interest rates.

A borrower can achieve a lower total cost for the house as a result of having mortgage points. Borrowers with mortgage points may notice the saving more in the early years of loan payment when they spend more on interests than on the principal amount. Even then, when looked at over the years, the savings achieved are huge.

A borrower may also benefit from points bought with regard to a possible tax deduction on mortgage points. Deduction for the tax is guaranteed for discount points, unlike origination points which are only tax-deductible under certain conditions. The result of a tax deduction is a reduced amount of interest to be paid on loan. This decrease is a relief for borrowers since they spend less on loan, especially in the earlier years of owning a home. You see quantified effects of tax deduction on loan here.

It may be necessary for you to find a professional to help you quantify the actual benefits you can have out of investing in mortgage points. Read more here to find potential services available for you. Find more information about reverse mortgages for yourself or your older folks on how does a reverse mortgage work.