Buying Down Mortgage Rates with Points

Getting a lower mortgage rate is possible by shopping around for the best mortgage rates. Another option to getting a lower rate is to buy points.

A point, also known as a discount point, are fees paid to the lender or broker for the loan. The more mortgage points you pay, the lower the rate will be.

A point is equal to 1 percent of your mortgage amount. Example, if your mortgage loan is $400,000, and you buy 1 point, the additional upfront costs would be $4,000 which can be rolled into the mortgage instead of having to come up with the payment at closing.

Rolling points into your mortgage loan will increase your loan amount and total costs, but you will probably still save money in the long run because your mortgage rate will be lower.

Usually, 1 point can get an eight to a quarter point percentage drop in the mortgage rate. You can use a mortgage calculator to estimate what the monthly mortgage payment will be with the lower rate and also figure out how long it will take to recoup the cost of points.

The longer you are planning to stay in your home the more sense it makes to buy down the mortgage rate you will pay. You can also ask for points to be quoted to you as a dollar amount, rather than just as the number of points, so that you will actually know how much you will have to pay for getting a lower mortgage rate.