video: What Are Discount Points?

 

Discount points allow you to lower your interest rate.


While this video simplifies things to help you remember, points are essentially prepaid interest with each point equaling 1% of the total loan amount.
Generally, for each point paid on a 30-year mortgage the interest rate is reduced by 1/8 (or.125) of a percentage point.
When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid.
Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment.
Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

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