What are points?

Question

I have no clue what points are? Are they good, bad? Do they cost money what are they? Thanks

Answer 1

Perhaps you are taking out a mortgage(borrowing money)

What points amounts to is an extra one-time charge added onto the amount you have to pay up front. Usually it is one point or two points, which means 1% or 2% of the amount you are borrowing. For example- if you are borrowing $100,000, then 1% of $100,000 is $1000 extra you would have to pay(just once) to get the loan or mortgage.

Answer 2

A "point" on a loan is essentially a borrowing fee, paid up front, equal to 1% of the value of a loan. When you pay a point on a loan, what you generally get in return is a slightly lower interest rate, elimination of a pre-payment penalty, or perhaps other terms that tips the loan term more in favor of the borrower. By definition, yes they do cost money, and they can be good or bad depending on what your goals are for the loan. If you plan on staying in your house for a while, it might be better to buy more points because you could save quite a bit over a 30-year period. But if you want your house more as an investment or only plan to live there a few years, paying points on a loan is probably not the best move, since you won't be there long enough to reap the benefits.

Generally, people with lower credit ratings will be required to pay more points on a loan in order to get it.

Answer 3

Well , there are many types of points but since you asked under real estate ,
They are upfront % they charge to make the loan .
As a borrower , you actually want a No - points loan but the annual % rate is usually higher for those .
If you pay point ( up front % ) , the annual rate is sometimes lower .
Crunch the #s both ways and see which one works out cheaper for you .

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Answer 4

Paying 1 point to get 0.25% lower rate is a great idea if you are going to stay there for more than 5 years and the reate is reasonable so you probably won't want to refinance. Not committed to staying put or keeping the loan? Not a good deal.

Answer 5

Points, discount points. Let's see, if you were to purchase 1-2 % to buy down the interest rate on the loan, you may gain 1/4 % lower rate. Make sense? In other words just because you pay 1% it doesn't mean your interest rate will be 1% lower, it may only be a 1/4 % lower. In todays world it really isn't cost effective to buy points.

Answer 6

I'm guessing points on your loan. One point is 1 percent of the loan amount. You can pay points up front at closing to get a lower interest rate. I think they have other uses also, but I'm not sure what they are. I know they can bring down your interest rate.

Answer 7

points for what?