Demystifying Mortgage Points
The term "mortgage points" may sound confusing, but it’s a straightforward concept. Points, also known as discount points, represent prepaid interest. By purchasing points at closing, you can reduce your loan’s interest rate, a strategy often called “buying down the rate.” One point equals 1% of your mortgage amount. For example, on a $200,000 loan, buying two points would cost $4,000 upfront but lower your monthly payments over the life of the loan. If you plan to stay in your home long-term, this can lead to substantial savings. Carefully weigh the upfront cost of points against the potential savings over time. If you’re unsure, your mortgage advisor can help determine whether buying points aligns with your financial goals.
Explanation of the 3-2-1 a e 3-2-1 and 2-1 Buydown Programs
A 3-2-1 Buydown and a 2-1 Buydown are mortgage financing strategies designed to help buyers manage their initial monthly payments during the early years of homeownership. These programs temporarily lower the interest rate at the start of the loan term, gradually increasing it until it reaches the permanent rate. Both options are particularly popular in markets with higher interest rates, as they make homeownership more affordable initially, giving buyers time to adjust their finances. These buydowns are often funded as part of a concession by homeowners selling their homes or builders of new construction who want to incentivize buyers.
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