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What are points and when should I pay them

Published On: December 26th, 2019

Points — or discount points — are essentially one-time, pre-paid interest charges on your loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. Discount points are tax deductible. Each point is equal to 1 percent of the total loan amount. For example if you had a loan amount of $150,000, 1 point would be equal to $1,500. In contrast to points, an origination fee is a fee charged by the lender to cover the costs of making the loan. The origination fee is not tax deductible. How do you decide whether to pay points, and how many? That depends on several factors, such as how much money you have available for a down payment, and how long you plan on staying in your house. Points reduce the interest rate, an advantage if you plan to stay in your home for a while. But if you need the lowest possible closing costs, choose a lowest possible point option on your loan program.

This information is intended for general educational purposes and may not be applicable to every borrower. Find a Guild Mortgage Loan Officer in your neighborhood for personalized guidance about your situation. Guild Mortgage does not provide tax, legal or accounting advice. Consult a tax professional regarding your tax deductions.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.

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