on the price of the home. This can save you thousands over the life of the loan...much more than if you had asked for a decrease in sales price.
One point costs 1% of your mortgage amount (or $1,000 for every $100,000). Essentially, you pay some interest upfront in exchange for a lower interest rate over the life of your loan. In general, the longer you plan to own the home, the more points help you save on interest over the life of the loan. For example, Bank of America, Better Money Habits, uses a chart illustrating points using a loan amount of $200,000. It’s possible to buy the points to ensure the interest rates are low when you’re getting the loan. Buying the points can help you down the line by guaranteeing that you save money, especially if you plan to stay in the house for an extended period. However, the amount of cash you’ll save by buying the points depends on the number of points you buy. For instance, if your mortgage is $200,000 and you buy two points, you will owe $4,000 when closing.
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