How to Calculate Cost of Mortgage Loan Points
Mortgage points are a cost that you pay when you take out the loan. Some of the mortgage points, known as origination points, are not optional. Others, known as discount points, are paid to lower the interest rate for the life of the mortgage. To calculate the total cost of mortgage loan points, you need to know how many points you are paying and how much you are borrowing.
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Instructions
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Determine the total amount of the loan. The cost of points is based solely on the size of your loan rather than on your credit score or any other factors.
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Determine the number of points that you will pay by adding the total number of origination points you must pay to the total number of discount points you choose to pay. The longer you plan to keep the mortgage without paying it off or refinancing, the more likely you are to benefit from paying for discount points.
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Determine the cost of the points by multiplying the total amount of the mortgage by the number of points you will pay times 1 percent. For example, if your mortgage is $203,000 and you are paying for 3 points, you would multiply $203,000 by 3 and then by 0.01. The cost of mortgage loan points would be $6,090.
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Tips & Warnings
The points you pay on your first mortgage are deductible from your taxes in the year that you pay them. If you pay points on a refinance or home equity loan, you can deduct the points over the life of the loan.
Though paying for discount points is usually a worthwhile investment, you should only do so if you have extra cash to spend on them. You should not have to carry a balance on your credit cards because you paid for extra points.
