Mortgage interest and Mortgage points
Mortgage Interest Rates:
Mortgage interest rate refers to the annual percentage charged by a lender for borrowing money to purchase a home. It directly affects your monthly payment and the total amount you’ll repay over time.
Mortgage interest rates change daily and vary depending on the type of mortgage, program, product, and individual circumstances. Based on a person’s credit score, income, down payment, current situation, and future plans, they can choose the mortgage type, program, or product that best fits their needs.
📊 1. Types of Mortgage Interest Rates
Type | Description |
---|---|
Fixed Rate | The interest rate remains the same for the entire loan term (e.g., 30-year fixed at 6.5%) |
Adjustable Rate (ARM) | The interest rate is fixed for an initial period and then adjusts periodically (e.g., 5/1 ARM) |
🔍 2. Factors That Affect Interest Rates
Factor | Impact |
---|---|
Credit Score | Higher scores typically qualify for lower rates (740+ is ideal) |
Down Payment | A larger down payment (20% or more) often results in a lower rate |
Loan Type & Amount | Jumbo, FHA, VA, or Conventional loans have different rates |
Market Conditions | Fed rate policy, bond markets, inflation, etc. affect rates |
Loan-to-Value Ratio (LTV) | Lower LTV = lower risk = better rate |
Debt-to-Income Ratio (DTI) | Lower DTI improves rate qualification |
📈 3. Sample Rates for Average 30-Year Mortgage (as of 2025, for reference)
Loan Type | Avg. Interest Rate |
---|---|
30-Year Fixed | 6.5% – 7.0% |
15-Year Fixed | 6.0% – 6.5% |
5/1 ARM | 5.75% – 6.5% |
FHA Loan | Slightly lower (but includes MIP) |
VA Loan | 0% down and lower rates for eligible borrowers |
💡 Interest Rate vs APR
Term | Meaning |
---|---|
Interest Rate | Pure interest charged on the loan |
APR (Annual Percentage Rate) | Total cost including interest + fees (a more realistic comparison tool) |
📌 Summary
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Interest rate affects both your monthly payments and the total cost of the loan.
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Higher credit scores and larger down payments help lower your rate.
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Always compare APR in addition to the base rate when choosing a lender.
✅ Mortgage Points
Mortgage points are optional fees you can pay upfront to reduce your mortgage interest rate. These are often called discount points.
📌 Example
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Loan amount: $400,000
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1 point = 1% of loan = $4,000
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Usually, 1 point lowers your rate by about 0.25%
(e.g., 7.0% → 6.75%)
📊 Types of Mortgage Points
Type | Description |
---|---|
Discount Points | Paid upfront to reduce the interest rate |
Origination Points | Lender’s processing fee (may or may not apply) |
Note: “Points” typically refer to discount points unless otherwise stated.
💡 When Paying Points Is a Good Idea
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Planning to keep the home long-term (greater interest savings over time)
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Want to lower monthly payments
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May offer tax deduction benefits (consult a tax advisor)
🔁 Comparison: With Points vs No Points
Item | With Points | Without Points |
---|---|---|
Upfront Cost | Higher | Lower |
Interest Rate | Lower | Higher |
Monthly Payment | Lower | Higher |
Total Interest | Lower over time | May be higher over loan term |
📎 Break-Even Point
The point at which your monthly interest savings offsets the cost of the points.
📌 Example: $50/month savings → $4,000 ÷ $50 = 80 months (about 6.7 years)
⚠️ Caution
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If you plan to refinance or sell the home soon, paying points may not be worth it.
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Points are considered part of closing costs.
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Negotiable with lenders and may vary by loan program.
Terry Kwon
Contact: (631) 624-4480
Email: terry@milestonepointinc.com
Funding Director at Milestone Point, Inc.
Licensed Mortgage Originator at Loan Factory
NMLS #2620208
Loan Factory NMLS #320841