How Mortgage (Discount) Points Work

Buying a home is one of the biggest investments that most people will make in their lifetime. Because of this, it is important for both buyers and sellers to understand the different costs associated with a real estate transaction, including points on a mortgage. Which is HOT topic right now for buyers and sellers alike.

Points, also known as discount points, are fees that a borrower pays upfront to lower the interest rate on their mortgage. Each point is equal to 1% of the total loan amount. For example, on a $300,000 mortgage (not purchase price, but the loan amount), one point would cost $3,000.

From a buyer's perspective, paying points can be a way to save money in the long run. By paying points upfront, the buyer can secure a lower interest rate, which can result in significant savings over the life of the loan AND on the monthly mortgage payment. However, it is important for buyers to carefully weigh the costs and benefits of paying points and determine whether the upfront cost is worth the potential long-term savings.

From a seller's perspective, points can be used as a negotiating tool to make their property more attractive to potential buyers. By offering to pay some or all of the points, the seller can help reduce the buyer's upfront costs and make their property more competitive in the market.

In some cases, buyers and sellers may negotiate over who will pay the points. This can be an important consideration in a real estate transaction, especially here in the Seattle real estate market as the cost of points can significantly impact the overall cost of the mortgage by $15,000-$25,000.

In conclusion, points on a mortgage are an important consideration for both buyers and sellers in a real estate transaction. By understanding the costs and benefits of paying points, buyers can make an informed decision about whether to pay upfront fees to secure a lower interest rate. Sellers can use points as a negotiating tool to make their property more attractive to potential buyers and reduce their upfront costs. Overall, understanding points can help both parties save money and make a more informed decision when buying or selling a home.

Always consult your lender or mortgage broker for the best advice for YOUR financial circumstances. Stoop & Gable Homes' preferred lenders always provide top notch, conservative advice that keeps your bottomline (and comfort zone) top of mind.