A point refers to 1% of the loan amount, meaning one point on a $100,000 loan equals $1,000. Points are fees paid to the lender in exchange for specific loan terms. Discount points, in particular, are used to reduce the interest rate on a mortgage by paying some of the interest upfront. Lenders often refer to these costs in basis points, where 100 basis points equal 1 point, or 1% of the loan amount. Understanding points and how they impact your mortgage can help you decide whether paying points makes sense for your financial situation.

Paying discount points to lower your mortgage interest rate can be a smart strategy if you plan to stay in the property for several years. By reducing your interest rate, you’ll lower your monthly payments and potentially qualify for a larger loan. However, if you only plan to stay in the home for a short time—one or two years—the monthly savings might not be enough to offset the upfront cost of the discount points. Carefully consider your long-term plans before deciding whether paying points is the right choice for you.

Mortgage rates can fluctuate between the time you apply for a loan and the day you close. If rates rise significantly during this period, your mortgage payment could increase unexpectedly. To avoid this risk, lenders often offer a “rate lock,” which guarantees your interest rate for a set period, typically 30-60 days. In some cases, there may be a fee for locking in the rate. A rate lock can provide peace of mind and protect you from market volatility while your loan is processed.

Credit scoring is a system lenders use to determine your creditworthiness—whether you’re likely to repay a loan on time. It’s based on information from your credit report, including your bill payment history, types of accounts, any late payments, collection actions, outstanding debt, and the length of your credit history. Creditors use statistical models to compare your data with others to assign a score. This score helps predict how reliable you are as a borrower. The most commonly used credit scores are FICO scores, which range from 350 (high risk) to 850 (low risk), developed by Fair Isaac Company, Inc.

Because your credit report plays a significant role in determining your credit score, it’s crucial to ensure its accuracy before applying for credit. You can obtain a copy of your report from the three major credit reporting agencies:

• Equifax: (800) 685-1111
• Experian: (888) 397-3742
• TransUnion: (800) 916-8800

Each agency may charge up to $9.00 for your credit report. However, you are entitled to one free credit report every 12 months from Equifax, Experian, and TransUnion. You can request your free report (though it may not include your credit score) by visiting AnnualCreditReport.com.

For conventional mortgages, if your down payment is less than 20% of the home’s purchase price, lenders typically require Private Mortgage Insurance (PMI) to protect themselves in case you default on the loan. You may be required to pay up to a year’s worth of PMI premiums at closing, which can amount to several hundred dollars. To avoid this additional cost, consider making a 20% down payment or ask your lender about alternative loan programs that may not require PMI.