Some Essential Things that You Have to Know Regarding Mortgage Points
Discount points are the other name for mortgage points. They are fees that are paid directly to the lender during the closing to have a reduced interest rate. This is called the buying down the rate that can certainly lower your mortgage payments every month.
Know that a point actually costs one percent of the mortgage amount or this is $1,000 per $100,000. You should be able to pay some of the interests upfront for you to be able to lower such interest rate on the term of the loan. The longer that you are planning to own the home, then the more points can help you save on interest on the life of your loan.
It is imperative that you consider how long it will take you to recoup the cost of buying points. Such would be known as the break-even period. So that you will be able to get an idea on this, you should divide the cost of your points on the amount that you will be able to save on such monthly payment. Such resulting number is going to be the length of time that it would take for the monthly payment savings to level or equal the cost of your points.
There are various things that you must know regarding the mortgage points. The terms on such buying points can differ extensively from every lender. Know that these are certainly the points that you have to take into account. Know that the interest rate reduction which you get for purchasing points isn’t set and this would depend on the lender as well as the marketplace.
You can also get a tax benefit from buying points. You need to call the tax professional for you to know if what you do can affect such tax situation.
You should be able to know that the points for ARMs would give a discount on the interest rate of your loan only on the initial fixed-rate period. You need to go through the numbers so that you can make sure that the breakeven point is able to cover well before that fixed-rate period would expire.
So that you will be able to determine if the points are great for you, you have to know if you have the cash to purchase points upfront, aside from the down payment, the reserves and the closing costs. Also, you must consider how long you plan to get that home.
Buying points so that you can lower the rate can make sense when you are going to choose the fixed-rate mortgage and you are planning to own the home after you have actually reached such break-even period. On certain circumstances, purchasing mortgage points if you would buy a home may save you a great amount of money over the term of the loan.