Setting Your Sights on Your Dream Home: A Guide to Points in Mortgage Loans§
Imagine you’re on the verge of acquiring your dream home—a spacious, luxurious property that seems perfect for your family. It’s priced attractively at $100,000. Exciting, right? You head over to your local lender for a mortgage, and they approve your request. But there’s a catch: the lender charges you three points.
So, what does this mean exactly? Points are essentially fees charged by lenders when they issue a loan. One point equals one percent of the loan’s total amount. In your case, for a $100,000 loan, three points would be $3,000. This means the amount you’ll have to repay initially becomes $103,000—your loan principal plus the points charged.
It’s important to understand that this $103,000 is separate from any interest that will accrue. The points are added once at the start and are not an ongoing cost. By grasping how points work, you can make more informed decisions regarding your home financing.
Related Terms: mortgage rate, interest, lender fees, closing costs.
