In real estate, a point is a mortgage rate of interest or any changes to an interest rate. For example, a lender says for every month, 3 points are added to the base amount, then the monthly interest is 3%.
Likewise, a point is also considered as the difference between the mortgage and the prime rate or in simpler terms, the discount rate. A point always has an initial value of 1% and lowers any mortgage at 0.25%.
In terms of adjustable rate mortgages (ARMs), points refer to the margin added to an index rate. An ARM with a 4-point margin, for example, will yield an adjusted rate of 10% if the index associated with the home loan is 6%.
Are Points for Sale?
The answer to this is yes. The price of every point is dependent on the total mortgage. For a property at $300,000, the cost of one point would be at $3,000. On whether or not the points are worth buying, this would depend on the buyer’s tenure in the estate.
Points take time to break even the amount spend and the savings received from the discount. However, points do not always have positive results. Its impact will depend on the mortgage scheme chosen by the buyer. Short-term investments may only be accounted as a loss rather than a gain.
Suffice to say, the longer the estate is kept, the bigger the savings will be.