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To Pay, Or Not To Pay...POINTS that is! What are they?:::Your Los Angeles Loan Officer

By
Mortgage and Lending with Diverse Solutions

POINTS - An often mis-understood concept for the first time home buyer.

Question: What are points?

Answer: They are nothing more than interest that is paid up front; at the time of closing on your loan. You usually pay points in order to obtain a lower interest rate on a loan thereby making your loan payment more affordable.

For Example:

                                    

So what do YOU get out of paying $3,000? Paying (1) one point usually corresponds to 1/4 to 3.75/8 of a percent lower interest rate; depending of course on the loan program and your credit rating. Use the Loan Payment Calculator on my website or better yet, use the Loan Payment Calculator to your right and see what the differences in payment are.

            

CONSUMER: Should I pay points? Does it make sense?             

MY ADVICE: Paying points can be a very prudent financial move if you're intentions are to remain in the home for a long period of time. Although the cost might seem daunting to some, the savings derived from the slight difference in a lower monthly payment corresponds to a tremendous savings over a 30 year period. For example, let's say paying (1) point saves you $100 per month. In order to recuperate the $3,000 cost of paying the point, you will have to wait 30 months (2.5 years). Every month thereafter, you earning savings! But, if you refinance before that 30 month break-even mark, you will have in essence wasted $3,000.

 

 One of the most important questions to ask yourself when you borrow money: "How long do I need to borrow this money?

Thinking of the answer will accomplish two things for you: it will answer,

1. Should I pay points?

2. What loan program is best suited for me?

But remember, it's not a question how long you plan to live in the home but rather, how long are you likely to be in that particular loan program. You might decide to move and rent your residence while keeping the loan you initially obtained to acquire the property.

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Ricardo Bueno - Your Residential & Commercial Investment Advisor

Ricardo Bueno is a Mortgage Advisor & Team Leader with Wilshire Financial, Inc. A diversified mortgage brokerage located in Pasadena, CA - The City of Roses!

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Additional Resources:

Is your Realtor working for you? Read this article posted by Irina Netchaev (your local Pasadena Realtor with Keller Williams): Pasadena Realtor Tells All: SELLERS BEWARE!!!

 

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