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Mortgage points, also called discount points, are an upfront fee paid at closing in exchange for a lower interest rate on the loan. They are optional on most loan programs, and deciding whether to buy them comes down to a break-even calculation more than a general rule. What a point actually costs One point typically equals 1% of the loan amount. On a $350,000 loan, one point costs $3,500. Lenders vary in exactly how much rate reduction a point buys, but a common range is roughly 0.125% to 0.25% off the interest rate per point, though this depends on the lender, loan type, and market conditions at the time. Points can usually be purchased in fractional amounts too — half a point, a quarter point — not just whole numbers. Why the break-even point matters Paying points lowers the monthly principal-and-interest payment, but the upfront cost takes time to recover through those monthly savings. The break-even point is roughly: Cost of points ÷ Monthly payment savings = Months to...

Many borrowers first compare mortgages using only principal and interest. The full monthly housing payment can also include property taxes, homeowners' insurance, mortgage insurance, and HOA dues. Escrow is the account or payment arrangement used by many lenders to collect certain recurring property costs. What escrow usually covers A lender may collect money each month for property taxes and homeowners insurance, then pay those bills when they are due. The exact items and rules depend on the loan and location. HOA dues are often paid directly to the association rather than through mortgage escrow. Escrow does not make taxes or insurance free. It changes the timing of the payments and can make the monthly mortgage bill more predictable. Why the amount can change Property taxes can change after an assessment, reassessment, exemption change, or local rate change. Insurance premiums can change after a renewal, coverage change, claim history change, or market adjustment. When the expec...

Private mortgage insurance, commonly called PMI, is an insurance product that may be required on some conventional mortgages when the borrower makes a smaller down payment. It protects the lender against certain losses; it does not protect the homeowner from missing payments. Why PMI changes the budget PMI is an additional housing cost. It is separate from principal, interest, property taxes, homeowners insurance, and HOA dues. If it applies to your loan, leaving it out of an affordability estimate can make a home appear less expensive than it really is. The amount and cancellation rules depend on the loan, lender, insurer, property, and borrower’s circumstances. Do not assume that every mortgage uses the same calculation. Is PMI required with every loan? No. Loan programs use different mortgage-insurance structures and eligibility rules. The Consumer Financial Protection Bureau’s PMI explanation describes common conventional-loan situations, including the relationship between a 20% d...