Is It Wise To Pay Points On Your Mortgage Loan?
Written by Author on April 18th, 2009If you are looking for a new home mortgage, you can have any interest rate you want… if you’re willing to pay enough points for it.
What exactly are points?
Points are an up-front fee paid to the lender at the time that you get your loan. A point is equal to one percent of your total loan amount. For example, 1 point on a $200,000 loan is $2,000, or 1% of the loan amount.
How is my mortgage rate affected by points?
Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. The thing to keep in mind though, is that the more points you pay, the more cash you’ll need at closing because it is an up-front fee. Another common term used for this practice is “buy-down” or a “discount” since you are paying today for a lower rate over the life of the loan.
Should I Pay for Points?
Paying for points isn’t necessary. While lots of the rates that are advertised on commercials do involve points, there are home loans that are available without them. Keep in mind that the rate you get for a mortgage without points will be higher than a rate with points.
Deciding whether or not to pay for points depends on your situation. Is paying points now to have a lower rate appealing to you, Or would you prefer to minimize your cash outlay right now and pay a bit more in your monthly mortgage payment? You can usually determine the answer based on how long you expect to keep the house (or this particular mortgage on it), and how you like to budget your money.
If you don’t think you’ll be in the house very long, it probably doesn’t make sense for you to buy points. The amount of time you keep your mortgage will impact how much total savings you garner from the lower monthly payments. On the other hand, if you feel like you will be in your home for a rather long time, you will probably save more in the long run than the current cost of buying the points. The other thing to think about when considering buying points is how much money you want to bring to the closing table. You’ll be paying at closing for those savings you’ll be experiencing every month.
No matter what your final decision is on whether or not to buy points, if you want more information about mortgage loans, you should visit Denver Home Mortgage Assistance.
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