Most experts and homeowners believe that one goal of a successful mortgage loan is to avoid paying points. But those who believe in this often end up eating their words.

Points, Interest Rates, And How You Can Cut Down On Mortgage Payments

The first thing to discuss would be what exactly points are, and how they work. If somebody wants to get a loan, sometimes he or she would need to pay an upfront cost to the lender – these would be what we call “points”. Those who want to have as little points as possible need a great credit score and a healthy monthly or annual wage. In certain cases, it might be more important to demand more, not less points.

Regarding mortgages, points and interest have a strange and interesting – no pun intended – relationship. Paying a lot of points would normally mean a lower interest rate. If your credit isn’t that good, that wouldn’t always be the case, but this is a general rule in most situations. Use the points-interest relationship to the best of your advantage.

The issue of points is irrelevant in one case – when considering the total amount of interest that a homeowner would pay for the entire loan cycle. But if you live in a property that is so good you want to stay there for ages, getting the lowest possible interest rate is more important than ever. After all, you are trying to save money. And it’s a greater opportunity to use your points.

If you have a lot of liquid cash when you buy the property, you can buy a certain amount of points and pay it to the lender to reduce your interest rate. Determine the effect on your interest rate before committing to use a certain number of points. One stressful part here – albeit mildly – is doing the math by using a mortgage calculator to evaluate which interest rates work the best for your needs. See if your monthly payment due can be cut down as well. Last, but not the least, compare the information gathered with the cost of paying more points before you decide.

The concept of points can be simple if mastered, and doesn’t need to be considered the bad side of the mortgage business. You could potentially save thousands, or even hundred thousands, over the lifespan of your loan.

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