What are Mortgage Points?

The structure of home mortgages varies around the world. Paying for mortgage points is a common practice in the United States. There are 2 kinds of mortgage points that I know of.  They are:

• Origination Point - According to Investopedia.com, origination point is a type of fee borrowers pay to lenders or loan officers in order to compensate them for the role they play in evaluating, processing and approving mortgage loans. Credit history is one factor that plays a role in the amount of origination points a borrower needs to pay. It is usually 1% of the total amount mortgaged. Not all mortgage providers require the payment of origination points.
• Discount Point - According to Investopedia.com, discount point is a type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate.  

Should You Pay For Points?

The decision of whether or not to pay for points generally focuses on discount points, and requires being able to understand the mortgage payment structure. There are two primary factors to weigh when considering whether or not to pay for discount points. The first involves the length of time that you expect to live in the house. In general, the longer you plan to stay, the bigger your savings if you purchase discount points.