fbpx
Paying Points to Lower the Rate
Two commonly known ways to lower your mortgage payments are to make a larger down payment especially if it eliminates private mortgage insurance and improve your credit score before applying for a mortgage. Another way to lower your payment would be to buy down the interest rate for the life of the mortgage with discount […]
Paying Points to Lower the Rate
Two commonly known ways to lower your mortgage payments are to make a larger down payment especially if it eliminates private mortgage insurance and improve your credit score before applying for a mortgage. Another way to lower your payment would be to buy down the interest rate for the life of the mortgage with discount […]

56609fd3-de52-4497-af71-1a67d94fdf28.jpg

Two commonly known ways to lower your mortgage payments are to make a larger down payment especially if it eliminates private mortgage insurance and improve your credit score before applying for a mortgage.

Another way to lower your payment would be to buy down the interest rate for the life of the mortgage with discount points. A discount point is one percent of the mortgage borrowed. Lenders collect this fee up-front to increase the yield on the note in exchange for a lower interest rate.

A permanent buy down on a fixed-rate mortgage is available to borrowers who are willing to pay discount points at the time of closing.

Let’s look at two options on a $315,000 mortgage for 30 years at 4% interest with no points compared to a 3.75% interest rate with one-point. The principal and interest payment on the 4% loan would be $1,503.86 compared to $1,458.81 on the 3.75% loan.

The $45.04 savings is available because the buyer is willing to pay $3,150 in points. By dividing the monthly savings into the points paid, you can determine the breakeven point. In this example, if the buyer is planning to stay in this home for at least 70 months, they would recapture the cost of the points and each month after that would be savings.

Another interesting thing to consider is that lower interest rate loans amortize faster; in other words, they build equity faster by paying off the loan sooner. If the buyer stayed in the home for 10 years, their unpaid balance in this same example would be $2,117.38 lower than the 4% mortgage. Combine that with the $2,259.29 in savings from the breakeven point to the end of 10 years and the buyer, in this situation, is $4,372.67 better off buying down the mortgage by paying the additional points.

For a person buying a home, it may be difficult to come up with the extra amount for the points but one benefit is that the points paid are considered interest by IRS and can be deducted in the year paid.

A rule of thumb commonly used is that one discount point lowers the quoted mortgage rate by ¼% or 25 basis points. A lender may quote X% + .6 points for a mortgage. Using this scenario, to lower the mortgage rate by .25%, the buyer would need to pay 1.6 points. It is important to note that each lender determines the pricing of points for the loans they make.

It may be beneficial to a buyer to pay points depending on how long they plan on being in that home. To help you determine whether paying points should be considered, use this Will Points Make a Difference and download the Buyers Guide

LIST OF BLOGS

Offer My House Without A Realtor

Offer My House Without A Realtor If you're believing, "I ought to offer my home without a real estate agent," the existing property market and surge of the Internet will make your task simpler. Offer My House Without A Realtor If you are seeking to offer a home...

What You Don’t Know About Real Estate Buying (3 )

What You Don't Know About Real Estate Buying Being in the market to buy genuine estate can make you feel a bit susceptible and baffled. Listed below you will discover some of the finest pointers out there! One crucial idea when it concerns realty, is to follow your...

Tips to Avoid Pitfalls in Owning Investment Rental Property

Tips to Avoid Pitfalls in Owning Investment Rental Property Operating and owning financial investment rental home can offer a variety of essential benefits. There are prospective drawbacks to owning rental home; nevertheless, you can assist to lessen possible risks by...

What Is A Rental Property Tax Deduction

What Is A Rental Property Tax Deduction A rental home tax reduction is any expenditure that develops from owning a rental home. Some other home tax reductions that the majority of individuals forget about are charges for an accounting professional, costs for an...

Property buyer’s Loan Guide

Property buyer's Loan Guide If you are a very first time property buyer, there are a couple of points on a loan for property buyers that you must keep in mind. The tips to a loan for property buyers are:1) Work out your cost and the payment that would develop up...

Dealing with a1031 Exchange

Dealing with a1031 Exchange There are numerous methods to benefit off of owning home and being associated with realty. Not just does this originated from discovering the ideal residential or commercial property, individuals and loans to deal with, however likewise...

Purchasing A House After Bankruptcy – Things To Consider

Purchasing A House After Bankruptcy - Things To Consider Insolvency can make getting any sort of funding far more challenging. It's not difficult any longer to get funding, even a couple of days after the discharge of an insolvency. Is getting a loan quickly after an...

Adapting to Life’s New Chapters

All of us encounter major life events and they have the possibility of disrupting our lives temporarily, if not permanently. The homes we live in may have met our needs originally but due to a change in our life, it may no longer be adequate or the best fit for us,...

My spouse and I are rather conservative in our beliefs

My partner and I are rather conservative in our beliefs We were amazed when our child came home from college and revealed that she was going to take the inheritance that she got from her godmother and purchase a home. She stated that she saw a home for sale close to...

RECENT POSTS

ABOUT  TWENTY
THREE HOMES

The Twenty Three Homes are one of the premiere real estate groups locally, nationally and internationally, specifically dealing with high-end properties and exclusive clientele. Partner with Keller Williams Twenty Three Homes are full service real estate experts whose clients benefit from the custom tailored, hands on service while receiving all the exclusive amenities and resources of one of the most established and respected firms in the business.

GET IN TOUCH