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Points

Points

Upfront fees that a borrower pays to the lender in exchange for a lower interest rate on their mortgage. Essentially, a point is equal to 1% of the total loan amount. For example, if a borrower takes out a $200,000 mortgage and wants to buy one point, they would pay an upfront fee of $2,000. In return, the lender might reduce the interest rate by 0.25%, which could save the borrower thousands of dollars over the life of the loan. While paying points upfront can be beneficial in the long run, it's important to do the math and make sure it makes sense for your individual financial situation. It may not make sense for someone who plans to sell their home in a few years or for someone who doesn't have enough cash on hand to pay for the points upfront. On the other hand, for someone who plans to stay in their home for a longer period of time and has the extra cash available, paying points can be a wise investment.
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