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Mortgage points – what does that mean?

When you buy points while financing a home, you're paying interest in a lump sum upfront to get a lower rate on a fixed-rate mortgage. Each point costs 1% of the mortgage amount. For example, if you buy a home for $150,000 and pay two points, that would be $3,000.

The more points you pay, the more you can save over the life of your loan. The return on an investment in points increases the longer you stay in the home. You may qualify for an income tax deduction on the points in the first year of the loan. One alternative to paying points is to increase the down payment.

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