Points of mortgages – how do they work?

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I think I know things, but I’m not sure. I have appreciated for a mortgage with an interest rate of 6.625% and on good faith, it is called “% Discount Points@0.438 ready” and said it would cost $ 876 have been pre-approved. Does this mean I can pay $ 876 to lower the interest rate of 0.438%, so I would therefore take an interest rate of 6.187%? Or does that mean I have to pay the $ 876, 6.625% in the first place and if I do not get my interest rate is 0.438% more?¬†We bought a house with our son on November 8 and pay for an item on the loan. Nothing has been said the last tax year since November and the closure was not paid enough. May be claimed points this year. So I’m really insurance PMI can be claimed.

  1. Reply
    February 5, 2011 at 2:48 pm

    Well, you have the right idea – you pay points (a certain amount of money, varies by loan) to lower the interest rate for the life of the loan. As to whether your contract offer says the amount is to lower it to 6.625 or to 6.187, it is impossible to tell without reading the contract. You don’t give enough info. Ask your realtor.

  2. Reply
    February 5, 2011 at 2:48 pm

    Points are directly linked to interest rates. The word “Discount” is an industry term for below market pricing. Discount Points & Origination Points are fees that the lender charges you to in order to reserve the interest rate that you have been offered on the Good Faith Estimate. So, in order for your lender to get you 6.625% they have to charge you 0.438% upfront at closing.

  3. Reply
    afiesha s
    February 5, 2011 at 3:18 pm

    Hi, the best way to answer your question would be to direct you to this site. The professionals there are way more apt to give thorough answers to your questions.


  4. Reply
    February 5, 2011 at 4:06 pm

    You can amortize the points over the life of the loan. You cannot take the full amount for 2009.

    If you paid one point that was 1% of the loan. Look at your loan paperwork for the exact amount. Divide the points paid by the number of months of the loan (360 for a 30 year loan). Multiply by 12 months and deduct that amount. It will not be a lot, but it is better than not deducting any of it.

    PMI insurance can also be claimed. It will be on your mortgage statement if you are paying it.

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