During the home buying process, we will discuss many loan programs that are available to you. As we begin, we will talk about what options make the most sense to you. For some, paying “points” might make sense. If this is a concept that is unfamiliar to you, I would be happy to show you all your options to help you decide which strategy is best for you.
Mortgage points, also known as “discount points” are upfront fees paid directly to the lender in exchange for a reduced interest rate. The purchase of each point generally lowers the interest rate on your mortgage by .125% – 0.25%. This process is called “buying down the rate” which can, in turn, lower your monthly mortgage payments. A point is equal to 1% of your mortgage amount. For example, three points on a $100,000 loan results in a cost of $3,000. These points may be tax deductible, which could be beneficial to your overall goals.
As a general rule, the longer you plan to own the home, the more you will benefit from buying points because you would accumulate more interest savings over the life of the loan. Another factor to consider is your break-even period, which is the amount of time it takes for the upfront costs of the points to equal the savings you will receive on your monthly payment at the reduced rate. In addition, points on adjustable rate mortgages often provide a discount on the loan’s starting rate during the initial fixed-rate period. When considering an adjustable-rate mortgage, we will run the numbers to ensure that your break-even point occurs before the fixed-rate period expires.
Is buying points right for you? When we talk we will-
1. Determine if you have enough cash to buy points up front in addition to your down payment and closing cost.
2. Determine how long you plan to keep the house and what your break-even period would be.
3. Conclude what your best options are.
Call me today to set up an appointment to talk about your home purchase! I would love to help you figure out your best buying option.
Tags: Mortgage Terms