What Are Mortgage Points?

Homebuyers in Arizona’s East Valley are exploring mortgage options to navigate the region’s dynamic market, and one term that often arises is mortgage points. Mortgage points, also known as discount points, allow you to prepay interest upfront to secure a lower interest rate on your loan throughout the East Valley.

Each mortgage point represents 1% of your loan amount. For a $400,000 loan, one point costs $4,000, and two points total $8,000. Typically, each point can lower your interest rate by one-eighth to one-quarter of a percent, potentially reducing monthly payments. For example, on a 30-year loan, this could shave off $20-$50 monthly, depending on the rate.

However, the value of points depends on how long you plan to stay in the home. The upfront cost often takes years to recoup through savings, and many homeowners sell or refinance before breaking even. The Anderson Team with Real Broker advises East Valley buyers to prioritize a larger down payment instead, strengthening your equity and avoiding the long wait to see returns. This approach aligns with the region’s competitive market trends.

Similarly, other rate buydowns, like the 3-2-1 buydown, involve paying extra upfront to temporarily lower rates (e.g., 3% in year one, 2% in year two, then market rate). These can complicate the process and delay benefits, making them less appealing. Focusing on a solid down payment and stable financing offers a simpler path to homeownership.

Understanding mortgage points helps you make informed choices. Consulting with experts can clarify whether this strategy fits your goals, ensuring a smoother journey in Arizona’s vibrant real estate landscape.