Video transcript: Mortgage points

On screen:

What are discount points?

On screen:

Tina, Mortgage banker

Tina:

A lot of people do get confused with discount points. It's basically what we allow you to buy down your interest rate with. Let's say your loan amount is $200,000. One point of that is one percentage which is $2,000 to buy down your interest rate to a rate that's below par. So that allows you to save more money on a monthly basis. But you do have to pay additional fees up front in order to get down to that lower interest rate.

On screen:

George, Certified Public Accountant

George:

If they come to me and ask about discount points I usually like to see the points paid, it's prepaid interest, it lowers the mortgage rate and therefore they get the deduction from the points first off and then what happens is the mortgage is lower for the life of the loan, so in the long run they can save quite a bit of money. Sometimes I advise someone not to pay for the points if perhaps you're gonna stay in the house for a short time  and they know that. It may not be enough time for the points to amortize over the life of the loan. So they may not have a savings, but generally if you're gonna stay there for a few years it pays off to pay some points.

On screen:

Discount points

• One point equals one percent of your loan
• Paying points lowers your mortgage rate
• The upfront cost can lead to long-term savings

Learn more about finding and buying a home.