Perplexed by the 0 points, 1 point or negative points affixed to your mortgage loan? You are not alone and hopefully the following explanations will help answer some of your questions.
Points are a charge by the lender. It is a charge that is part of the mortgage and expressed as a percentage. One point would be 1 percent, and on a $100,000 loan, the point cost would be $1,000. Negative points are basically a "rebate" from the lender that can be applied to other costs that you incur during your closing process.
Borrowers wanting a low interest rate often are charged higher points. This is usually for borrowers that have the cash for the points, want a reduced monthly payment and are planning on remaining in the home for several years. If you are not planning on remaining in your home for a long period of time and are short on cash, you may pay a higher interest rate but less in points.
Points can be financed but it may raise the loan amount that
resulting in a larger mortgage insurance premium.
Points paid by cash are tax deductible in the year in which the home was purchased.
If you are refinancing, the points are also deductible but must be figured
over the term of the loan. If points are financed, they will increase the
amount you pay in yearly interest,
but may not be deducted as points.
When shopping for a mortgage, keep the points in mind and decide how you want to handle them before selecting a lender. Loan providers vary in rates and points so be sure to check it out completely before you are to far in to the process to change your mind.
