There are two common myths surrounding the idea of paying points on a mortgage.
- You should pay down points when you refinance your mortgage to receive the lowest possible interest rate.
- You should never pay points when you close your refinance.
For those not familiar with the concept of paying points on a loan, a “point” is generally equal to one percent of your loan amount. For example, two points on a $100,000 loan results in a cost of $2,000. Points allow you to “buy down” the interest rate. This means that the more points you pay, the lower your interest rate will be which may save you money over the life of the mortgage. Plus, points are tax deductible.
Myth 1
For the sake of example, we will assume that your mortgage interest rate is 5% and you would like to refinance at a rate of 3.5%. You are likely going to incur closing costs (lender fees, credit report, appraisal, etc.)
If you are at 0 points and your rate is 3.5%, you could pay 1 discount point to receive to a lower fee. This is possible because the lender looks at this transaction like buying in bulk. Sometimes paying down works for you and sometimes not. Your loan officer will be able to advise you on whether or not this is the best decision for you by analyzing the total closing costs of the loan and dividing it by the monthly savings to see if this will work for you.
Good LO should able to tell you the total cost. We typically base our calculations on your financial goals for the next five years. Fairway wants to save you money and our mortgage planners will go the extra mile to make that happen.
Myth 2
Some people believe that they should never pay closing costs when they refinance their mortgage and we certainly have great loan programs and incentives to make that possible for you. When we use premium pricing, that rate makes it possible for us to roll the closing costs into the refinance by adding a bit to the interest rate. That “rebate” from the bank will help pay the closing costs. To Read More Click Here.
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