When considering a home purchase, I will discuss many lending options with you depending on your financial goals and what payment fits best with your budget. One of the things I may suggest is paying “points” on your mortgage. Simply put, mortgage points are pre-paid interest. In most situations, if you choose to pay points on your mortgage loan, you will have a higher upfront closing cost, but a lower interest rate. A ‘point’ is usually equal to 1% of the loan amount and will lower your interest rate by .025% – 0.5%.
If you plan on staying in your house and carrying your mortgage for an extended period of time, paying points may be a good option. The easiest way to judge if you should consider paying points is to look at the Total Cost, amount of interest and closing costs combined, of your mortgage over time. Ask yourself if you can afford to pay up front for the points now – if you can, it might be worthwhile to consider.
Because you are paying more up front, the reduced interest rate will save you money over the long term. The longer you carry your mortgage, the more likely you are to reach the “break-even” point where your interest saved compensates for the cash you paid outright to buy the points.
Call me today to find out if buying points on your mortgage is right for you, or to see what loan may make the most sense for your situation.
Tags: Mortgage Terms