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How to Calculate Mortgage Points


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It is very simple to learn how to calculate mortgage points. All you have to do is divide the total loan amount by 100, because one mortgage point is equal to one percent of the loan value. For instance, a $300,000 loan has 100 $3,000 points. Each point must be paid at closing, in addition to the standard closing costs. This is a good way to make the payments more manageable, but is more beneficial for people who plan on being in the home for several years before selling or refinancing. The most lenders will usually accept in mortgage point payments is 3 or 4 points. One mortgage point generally equals a quarter of an interest point, so don't expect to be able to buy down the rate by more than one percent.

You can also pay origination points to reduce the fees to start the loan. The origination fees include things such as the appraisal, notary fees, and inspection. If you will be itemizing deductions on your income tax return, you will be able to deduct the mortgage points you buy, but if you are taking the standard deduction, you cannot deduct it.