Paying Points can be a good way to reduce your home purchase mortgage interest rate.
The Mortgage Professor reminds that there are opportunities on the home lending market and that one is for you to use points to pay down the loan interest rate.
He says that during 2005, it cost about 1.5 points to buy down the rate by 0.25 percent on a 30-year fixed rate mortgage. In 2007, it cost about 1.125 points to buy down that rate by .25 percent. Today in January 2009, that buy down would cost about half a point.
So if you need a $417K loan and want to buy down the rate .25 percent (example from 5 percent interest to 4.75 percent interest), the difference in buy down cost since 2005 has been reduced by $4,170.
Sound good?
The lowered cost of buy down is possibly because of shorter average life of loans, which increases the value to mortgage investors who collect points up front. And lower interest rates carry lower payments. Mortgage investors also like that, because it reduces the chances of borrower default.
Always ask your mortgage broker to check with the lenders and find out about cost of an interest rate buy down.
See the calculator at The Mortgage Professor. This is for borrowers who want to know whether paying
higher points to get a lower interest rate on an FRM is a good investment.
Paying points (buying down your home mortgage loan interest rate) can yield significant return on investment (ROI) in five years ... and much more over thirty years.
Harrison K. Long, Explore Group Properties, Coldwell Banker Previews.
Comments (5)Subscribe to CommentsComment