How can you use an online calculator to figure points charged for a home mortgage?


Quick Answer

Online mortgage calculators, such as the those offered by Bankrate and the Mortgage Professor, calculate how much money borrowers save on their interest rates by buying discount points at close, explains Bankrate. By buying discount points, borrowers reduce the amount of interest they pay during the life of the mortgage.

Continue Reading

Full Answer

There are two types of points, origination points and discount points, as Bankrate notes. A point represents 1 percent of the loan amount. Therefore, if a lender charges a borrower two points to cover a portion of the costs to originate a $100,000 mortgage, then the borrower pays $2,000 at the closing table.

Discount points allow borrowers to buy prepaid interest prior to closing, according to Bankrate. Discount points also represent 1 percent of the loan amount. If a borrower buys two discount points on a $100,000 mortgage, the borrower saves $2,000 in interest on the loan. The Bankrate mortgage calculator allows users to calculate discount points, and the totals show how much borrowers save in monthly mortgage payments, interest rates, and principal and interest payments.

The Mortgage Professor offers a break-even calculation showing borrowers whether or not they save money over the life of the loan by buying discount points. However, the Mortgage Professor online calculator only works for fixed-rate mortgages.

Learn more about Credit & Lending

Related Questions