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How do Mortgage Points work and why they Matter


One of the first things that you should know before looking for Ontario mortgage rates is to know how mortgage points work. You might be familiar with the term if you are used to buying and selling property in the country. However if you aren’t, it is time that you knew. Knowing about them might make you the proud owner of your very own home faster.

What are Mortgage Points?

Mortgage points are also know as interest or discount points and are equal to 1% of a total value of a loan. For instance the point value of a $400,000 home will be $4,000.

You might end up with a higher payment than you prefer depending on the amount of the interest rate or home loan from your lender. You can buy your mortgage points in order to reduce the interest rate rather than giving up ownership of a home or getting a loan with less money. This will satisfy the lender and you as well especially where Ontario mortgage rates are concerned. However make sure that you are prepared to negotiate since the lender might not agree to the deal.

When should you buy Mortgage Points?

The benefits of purchasing mortgage points are apparent. Once you prepay your interest you will get lower rates which in turn will leave you with lower payment throughout the course of your loan. A downside of purchasing mortgage points is that you might have to live in the property for a couple of months in order to break even on the transaction. In this case it makes sense to resort to such initiatives if you do not plan on moving for a long time.

Do not worry about paying the points if you can afford to keep up with monthly payments. However if you find that you are unable to buy down your points you might have ended up more than you can handle. In such case it is best that you look elsewhere and find a property that is easier on your finances.

Why you should pay for discount points depends whether you understand Ontario mortgage rates and the mortgage payment structure. This depends on two factors. Firstly it depends on how long you plan on living in the property. You will save up more the longer you stay provided that you have already purchased discount points. For example a $100,000 mortgage with an interest rate of 6% will cost you $599.55 on a monthly basis for principle and interest.

Secondly you have to know whether you can afford to pay for mortgage points. Most homeowners are already burdened with the down payment and closing costs and think twice about coming up with the cash for discount points.

However, purchasing points has proven to be a promising prospect for those who can afford it. Therefore make sure that you look up how you can purchase discount points the next time you look for Ontario mortgage rates.

Tags: Mortgage
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