Points
In real estate, “points” refer to upfront fees paid by a borrower to a lender at the time of closing in exchange for a lower interest rate on a mortgage loan. Each point typically costs 1% of the total loan amount and can result in a reduction of the interest rate by a certain percentage, usually around 0.25%.
Paying points upfront can be advantageous for borrowers who plan to stay in their home for an extended period, as the lower interest rate can result in significant long-term savings on interest payments. However, paying points may not be beneficial for borrowers who plan to sell or refinance their home in the near future, as it can take several years to recoup the upfront costs through lower monthly payments.
In real estate transactions, points are negotiable between the borrower and the lender, and their use can vary depending on market conditions and individual financial circumstances. It’s important for borrowers to carefully consider the costs and benefits of paying points and to compare different loan options before making a decision.