Should You Pay Mortgage Points Up Front?

As you begin the home financing rigamarole, you will undoubtedly come across points. And you will learn that in some cases, it can be a good idea to pay mortgage points up front. But it is important, as you seek out mortgage advice, to consider what kind of points you will be paying.

Origination points

These are basically your loan origination fees. Mortgage loans often come with special fees that you have to pay in order finance the loan (it seems kind of unfair that you have to pay for the privilege, when you are already paying interest and who knows what other mortgage fees). But there it is. Origination points aren't particularly helpful in terms of lowering an interest rate or saving you money. But, if you are looking at discount mortgage points, then you may be in luck.

Discount mortgage loan points

Discount mortgage loan points can have an advantage to you if you pay them up front. These types of mortgage points actually reduce your interest rate, and can do so in a meaningful way. If you plan to stay in your home for a long time, then the savings that you can reap from the lower interest rate can really add up to help you save money over all. Plus, such mortgage loan points are considered interest payments, and can be tax deductible (check with the IRS to be sure).

If you are not planning to stay in the house for a while, or if you know that you will need more money down the road, paying the extra discount points may not be the best option for you. Carefully consdier whether discount mortgage loan points might help you save more money in the long run.

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