What are points when refinancing?
by 
The Curious Bag
ANSWERS: 1
-
Lenders give borrowers the option to purchase points when refinancing their home. The points are a fee used to "buy down," or purchase a lower interest rate than the rate offered for free.
Significance
A point can help a borrower lower his interest rate. The lower the interest rate, the lower the monthly payment.
Function
Paying points allows the borrower to reduce the interest rate to the level of his choosing. The more points paid, the lower the interest rate.
Types
Points can be purchased on a variable or fixed-rate mortgage.
Considerations
Refinances can cost the borrower from 3 percent to 6 percent of the loan amount, and paying points increases the closing costs.
Misconceptions
A point is not the same as the origination fee, which is the fee paid to the lender for processing the loan.
Source:
FederalReserve.gov: A Consumer's Guide to Mortgage Refinancing
RELATED QUESTIONS
Copyright 2023, Wired Ivy, LLC