Understand the Mortgage Points

Anyone who has ever shopped for quotes on a mortgage to find out just how much it might cost has likely heard about mortgage points. Though the term might seem abstract, the concept is actually quite simple. Mortgage Points are nothing but certain charges to be paid in order to obtain a mortgage on a home. Each mortgage point is a fee based on one percent of the total amount of the loan.

Let me be more clear to you. Mortgage Points is kind of a fee that is paid upfront when taking out a new loan or refinancing the existing mortgage. Mortgage points are of mainly two types, the first being the "discount points" and the other "origination point". Let us understand both of them clearly.

Discount Points is something that you pay the lender in exchange for lowering your mortgage rate. The decision to pay discount points should be made considering how long you plan on staying in your home and how long it will take you to recoup this expense. On the other hand, Origination Point is that you pay to the person arranging your loan. Since, Mortgage rates are at the lowest level these days so the homeowners should think long and hard before agreeing to pay discount points.

Mortgage Origination Points are bit difficult to understand as compared to discount points. This fee can range anywhere from zero to as much as five percent. When refinancing your mortgage you will be able to refinance paying only a flat one percent origination fee to the broker. This means there will be no markup of your mortgage rate for a commission which results in a higher monthly payment for as long as you keep the loan.

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