They are called ?discount? points, since they lower/reduce the interest rate on the mortgage. Your interest rate is determined by a number of/many factors, the most important of which is your credit rating/standing. But the interest rate is paid over the entire life of the loan, and so a higher rate can increase the cost of the loan significantly.



Perfect/Preferred borrowers, with perfect credit histories, pay a rate known as ?par?, the rate the bank expects to make on a mortgage with low/little risk. Everyone else will get a rate based on the credit rating. If you can reduce/lower this rate, which lasts over the life of the loan, is it worthwhile to do so by paying points?

In some cases, especially in a strong buyers market, the seller may be willing/convinced to pay these points so that the buyer saves money over the long run on his mortgage, making the home a more attractive purchase/more attractive on the market. - taux hypothecaires

For example, if you are borrowing $100,000 for your home/property and you can obtain a mortgage rate of 6% without points, how much could/would you save if you paid points?

If the home loan/mortgage is for 30 years, two points will lower your 6% mortgage to 5.5%. How will this affect the total costs of your mortgage? The cost/up front payment is $2,000 (2 points on a $100,000 mortgage). Will you recover that cost eventually?

Any loan calculator you can find on the net will calculate/give you your payments. Total interest at 6% is $115,838.19; total payments is $215,838.19; mortgage payments will be $599.55 - taux hypothecaire quebec

Now, calculate these costs over the $2,000 you would pay for points to reduce/lower the loan to 5.5%. Total interest: $104,404.04; total payments: $204,404.04; mortgage/loan payment: $567.79.

Did you save/do better with this choice? Of course! The savings in interest are $11,434.15 and your monthly mortgage payments have been reduced by $31.76! Now you know why many mortgagees/borrowers are willing to pay points.