Points are fees you pay when you obtain a mortgage. Much like the interest you pay each month on your loan, points are essentially finance charges, but only you pay them up front, usually at closing. A lender can charge up to three points and each point is equal to 1 percent of your loan amount. For example, if you take out a $150,000 (one hundred fifty thousand dollar) mortgage and have to pay one point in fees, the point charge equals to $1,500 (one thousand five hundred dollars). Generally, the more points you pay up front, the lower the interest rate that the bank will charge you over the course of the loan. Also, like interest, points are 100 percent tax deductible in the year you pay them. It's recommended that when you shop around for a mortgage that you ask for a quote with or without points. It may be that instead of lowering your interest rate in the future, you want to reduce your closing costs and need to choose a zero point option on your mortgage program.
©2006 Crossroads Mobile. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
