Mortgage Strategy
Mortgage Points Explained in Plain English
A mortgage point is prepaid interest. You pay upfront to reduce your rate. One point usually equals 1% of your loan amount.
How points work
- Higher upfront cash at closing.
- Lower monthly payment from lower interest rate.
- Potentially lower total interest if you keep the loan long enough.
When points can make sense
When break-even on the point cost occurs well before you expect to move or refinance again.
Point test: calculate months to recover point cost from monthly savings. If you likely exit earlier, skip points.
Questions to ask lender
- Rate with 0 points vs 1 point vs lender credit option.
- Total closing cash required under each option.
- Break-even month for each option.