What are mortgage points?

Mortgage Points: What You Need to Know

March 2, 2020
by Team SESLOC

What are mortgage points and are they right for you?

Mortgage points are basically discount points. When you’re getting your home loan, you can buy mortgage points to lower your rate and save you interest in the long run.

The value of mortgage points are tied to market rates and conditions, which means they’re subject to change. In a volatile market, the value can change daily. Generally, you can estimate a point to be around 1% of your loan amount for a 0.25% rate discount, but your mortgage lending officer will advise you of the current climate.

Here’s How it Works

Here’s a simplified example of how mortgage points work to save you money:

A member is getting a home loan for $350,000 with a 30 year mortgage at 3.5% interest. They can expect a monthly payment of $1,571.66. Over the course of their 30 year loan, they will pay $215,795.30 in interest.

Mortgage No Points

The member is interested in buying mortgage points. They can buy down their rate approximately 0.25% by paying 1% of their loan amount for an up front cost of $3,500. This lowers their rate to 3.25% for 30 years. With the point, their monthly payment will be $1,523.22 and they can expect to pay a total of $198,360.37 in interest over 30 years.

Mortgage with One Point

So is the point worth it? It lowers the monthly payment by $48.44 and saves $13,934.93 (the difference in interest, minus the point payment) over the life of the loan.

This is great news if this member is buying their “forever home,” but what if they’re thinking of selling down the road? They can divide the cost of the point by $48.44 (the monthly savings) and see that the point pays for itself in six years. If the member is planning to stay in the home more than six years, the point is worth taking into consideration.

Why Not Just Pay More on the Down Payment?

Here’s what it would look like if the member in our example put the additional $3,500 towards their down payment, bringing their loan to $346,500. They can expect a monthly payment $15.72 less than what they would pay financing $350,000 at the same terms, which saves $2,156.98 in interest over the life of the loan.

Mortgage Summary Down Payment

Want to Explore Your Options?

Buying a home is likely the biggest purchase you’ll ever make, which is why it’s so important to have someone on your team to advise you of all the financing options available to you.

SESLOC Mortgage Loan Officers can help you understand your options and find the solution that’s the best fit for your needs. For a free consultation, call (805) 543-1816, email or book an appointment.

 

Share this post

Like this post

+1
“Great alternative to big corporate banks that profess to also be “people” but don’t remind you of any person that ever cared about you in the least.”

Shawn
"We've been members of SESLOC since 1972. It was refreshingly user-friendly then and that attitude continues to this day."

Dan
"Excellent place for depository accounts and loans. Low rates, one of the best online financial services and the people there are friendly... It truly feels like a hometown credit union."

Mary
"All of the employees are always professional and greet everyone with a smile. On top of banking, I have used them for auto loans in the past and have always been happy with the rates and service."

Jennie
"SESLOC has always come through for us, whether it is for car loans, mortgage loans or refinancing. The staff are attentive and friendly, their rates good. SESLOC is our bank for everything."

Mary
"Love this bank! 🤗😁👍 The workers are sooo nice and friendly!!"

Lanie
"The best place to go. Will never go anywhere else for financing my vehicles. Fast, easy, and friendly."

Greg
"I love my credit union because they are straightforward and helpful. I appreciate the many ways that they support financial literacy in the community."

Stacey
"This credit Union Rocks just like Incubus."

Aja
SESLOC Credit Union
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.