What are discount points?
Mortgage points, also known as discount points, are fees that a borrower pays to a lender to lower the interest rate on a mortgage loan. Each point is equal to 1% of the loan amount, and paying one point can lower the interest rate on the loan by about 0.25% but depends on each unique situation.
For example, if you take out a $300,000 mortgage loan and pay one point, the cost would be $3,000. In exchange, the lender may offer a lower interest rate on the loan.
Borrowers can choose to pay points as a way to reduce their monthly mortgage payments and the overall cost of the loan. However, it's important to keep in mind that paying points will increase the up-front costs of the loan.
It's important to consider the length of time you plan to stay in the home and the size of your down payment when deciding whether to pay points. In general, if you plan to stay in the home for a long time and you have a small down payment, it may make sense to pay points to lower your interest rate and monthly payments. However, if you plan to sell the home soon or you have a large down payment, it may be better to avoid paying points and use the money to pay other costs associated with the loan.
Although purchase of discount points is a cost that occurs during closing, CapCenter does not consider discount points a closing cost because these costs are not associated with processing the application. The purchase of discount points goes into lowering the interest rate of your mortgage and can vary based on loan products and the borrower's or borrowers' discretion. Free, anonymous quotes provided by CapCenter's online mortgage calculator usually offer base rates with 0 discount points for low fee and Zero Closing Costs mortgages.
Since many mortgage lenders do not offer Zero Closing Cost mortgage loans, when you are comparing loan estimates with CapCenter's, it helps to convert the closing costs of the other lender into CapCenter's discount points for a more apples-to-apples comparison. CapCenter also excels in non-lender fees and terms, so check out our online mortgage savings calculator to see potential CapCenter savings on fees.
Learn more about whether you should purchase discount points.