If a borrower buys 2 points on a $200,000 home loan then the cost of points will be 2% of $200,000, or $4,000. Each lender is unique in terms of how much of a discount the points buy, but typically the following are fairly common across the industry.

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 · Assume it costs two points, or $4,000, to reduce a $200,000 VA streamline rate by 0.50%. The rate reduction would yield about a $55 per month savings. Dividing $4,000 by $55, it would take 72 months or 6 years to make back the money.

Either origination or discount points, it works the same way. One point is one percent of the loan amount. For example, if your loan amount is $100,000 and the interest rate is 6.625%, you might buy it down to 6.375% by adding one point ($1,000) to your closing costs.

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One percent of the loan amount equals one point, though points do not have to be round numbers. Deals between lenders and borrowers commonly employ 1.25 points,5 points, 2.375 points or any similar derivative. For example, 1 point on a $200,000 loan would.

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Buying Down a Mortgage Rate: When to Pay Discount Points. One discount point carries a cost equal to one percent of your loan size. discount points are not the same as your "origination fee", the fee that the mortgage lender charges to complete the loan.

 · To figure out if buying points makes sense, divide the cost of points paid ($1,000 in the example above) by the difference in monthly payment between the two rates. In the example above, the difference in payment is $47.35 ($599.55 – $552.20).. Buy down money DOES NOT go to the principle balance, it goes directly to the lender..

Considering two typical 30-year fixed-rate mortgages quickly shows how much paying a point will save (or cost) you on a typical $100,000 mortgage. Mortgage Option 1: 4% interest rate with no mortgage points; Mortgage Option 2: 3.875% interest rate with 1 point

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