Let Fairway ‘Point’ You in the Right Direction

October 1, 2018 12:00 am

A couple looking at their LO's iPadDuring the homebuying process, we will discuss many loan programs available to you. First, we will talk about the options that make the most sense. For some buyers, one such option is paying “points.” If this concept is unfamiliar to you, I would be happy to show you all your options to help you decide which strategy is best for your individual situation.

Mortgage points, also known as “discount points” are upfront fees paid directly to the lender in exchange for a reduced mortgage interest rate. The purchase of each point generally lowers the interest rate on a mortgage by an amount ranging from .125% to .25%. This process is called “buying down the rate,” and it can ultimately lower your monthly mortgage payments. A discount point is equal to 1% of your mortgage. For example, three points on a $100,000 loan would cost $3,000. These points may be tax deductible, which would 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, since you would accumulate more interest savings over the life of the loan. Another factor to consider is your break-even period, which is how much time it takes for the upfront cost 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, along with the timing and duration of your break-even period.
  3. Make a conclusion about your best options.

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 options.