A few terms associated with a second mortgage loan
can seem somewhat esoteric. Advertisements for various
lending institutions can sometimes be hard to translate.
For example, many consumers find themselves wondering
what, exactly, is meant by the term “points”
In the context of a mortgage loan, “points”
refer to a percentage of the mortgage loan, usually
one percent, which you pay to the lending institution
in exchange for a lower interest rate. If your second
mortgage loan is in the amount $150,000, for example,
you would typically pay $1,500 for each point. Thinking
of a point as being pre-paid interest, which is how
it is viewed by the lending institution, is a good way
to understand the concept.
Depending on the term of your loan, and other considerations
specific to individual situations, this may be a good
idea for you. Be sure to consultant with your tax advisor
or the Internal Revenue Service about whether you can
deduct the cost of points from the amount of your total
taxable income for the year. Remember, when it comes
to income tax, each situation is different and, therefore,
you must be sure you qualify before assuming you can
take any deduction.
Some lenders will use points to try and get you to
pay unnecessary fees. If your loan officer does not
clearly explain the specifics about how purchasing points
will impact your second mortgage loan and the associated
costs, request clarification or take your business elsewhere.
Remember, a reputable lending institution is interested
in partnering with its customers, not pulling the wool
over their eyes. A good member of the banking community
knows the value of an informed consumer.