You score points when you're playing a game of basketball with the boys. You may (or may not) score points when you have discussions with your significant other. But do you really score points when you pay points to a mortgage lender? The short answer is yes—in some cases. As your loan officer has probably explained, paying a mortgage point reduces your interest rate and is usually beneficial if you have found your dream home and plan to stay in the same loan for the long haul. It's simple to calculate mortgage points for your hypothetical loan.
Discuss your options for paying mortgage points with your loan officer to determine exactly how many points you want to buy. The maximum number of points you can buy varies by state.
Convert the number of points you wish to pay to a percentage then represent the figure in a decimal format. Each point represents one percent, so if you want to purchase two points, that is converted to two percent. Two percent is equal to .02 in decimal form.
Determine the total principal balance (the amount you plan to borrow). Keep in mind that this is not commonly the price of the house—it's the house price less any down payment you plan to put down on the house. Say the principal balance is $100,000.
Multiply the percentage points you converted to decimal format in step two (.02 in this example) by the principal balance ($100,000 in this case). The result is the amount you have to pay for your mortgage points ($2,000 in this example).