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Many people don’t know anything about home loan points, even those that may own a home. They just are not sure of what home loan points are. Having less home loan points can help you with many different things so that you will end up paying less on your mortgage.

So, what are home loan points - and how can they benefit you, the potential home owner?

The Basics of Home Loan Points

The basics are easy to understand, especially if you’re a quick learner. Simply put, home loan points are something that you purchase when you’re getting a mortgage to lower your interest rate.

Home loan points are basically 1% of your loan - so, if you’re taking out a loan of 100,000, one point would be about $1,000. Many times, you can buy these home loan points, and lower your interest rate.

But… are home loan points really worth it? Do they make that much of a difference? Why are they there at all?!

Good questions, actually, and questions you can’t find answers to easily.

Are home loan points really worth the time?

This is the question that home owners struggle with. Can they afford the extra money… and is it really worth it, in the long run, to hassle with any sort of points?

It can depend on your situation and the type of loan and the loan company your looking at. The big question is do you have the extra money to spend on the points and how much are you going to save?

For instance, if you find that your monthly mortgage payment will go down by as much as $50 and you have some extra money available to buy points, then home loan points could be highly beneficial. In this case, while there is a little money upfront, the long-term savings are tremendous.

Why Are Home Loan Points There At All?

These are there really to help you pay for a better long term loan and to let you have a choice. You may pay more up front, but you will have a lower interest rate and you don’t have to worry about it. You’ll still get a decent loan.

Additionally, while you enjoy many benefits so does the loan company. The reason is that they get the money you pay upfront for the home loan points, which is why they are in business in the first place - to make money. Typically, these companies make the points an optional thing.

The Bottom Line Is

The bottom line is that home loan points can help you, but you don’t need them. It’s up to your situation, and extra money - so choose wisely, and carefully.