There are a plethora of home mortgage terms that you will run into as you buy a home. One of these terms is "points." A point is 1% of the price of the home. There are two ways you can use points when closing on a home mortgage.

First: You can pay points in exchange for a lower interest rate. Say you are buying a home for $130,000. One point would be equal to $1,300. For the most part (but it varies by lender), you can get a 0.25% reduction on your interest rate for each point you pay. So, if you can afford to pay a couple of points, you can end up with a better interest rate.

Second: It is also possible to use home loan points to go toward the costs of processing the home loan. These are called origination points.

Advantages to paying points on your home loan

There are advantages to paying points on your home loan. For the most part, you get the best advantage if you plan to stay in your home for a while. You pay a little up front, but save thousands over the life of your loan (especially if it is the common 30-year fixed variety). Additionally, in some cases, your points are tax deductible in the year you get a home mortgage.

You can use use this  home loan points calculator to decide if paying points will work for you.

Tags: home loan, home loan terms, home mortgage, home loan points,
tax deductible points, paying points home loan