To Pay Points Or Not To Pay Points - That Is The Question!

By
Mortgage and Lending with Benchmark Mortgage of Louisiana

How do you "buy" a better rate?  Great question - let me tell you.

A point -- which equals 1% of the total loan amount -- is an up-front fee that lowers your annual interest rate and total interest due over the life of your loan.  So, a one point loan will have a lower interest rate than a no point loan.  Basically, when you pay points you trade off paying money later in favor of paying money now.  You can pay fractions of points also, meaning you can paying 1.5% to get a lower rate than if you paid 1%.

Several major lenders are offering "No Closing Cost" and "No Fee" loans.  This is a great concept for someone who is not planning to stay in their home for very long.  Otherwise, it could be a big rip-off!  No one, I repeat, NO ONE, does a loan for free.  You either pay the fees upfront, or you pay them in the rate.  A mortgage planner will look at your long-term goals and help you determine which is the best way for you.

Do you plan on keeping your loan for a while? Then it may make sense to "buy" a lower interest rate by paying one or more points.  In these times of low interest rates, doesn't it make sense to buy your rate down as low as possible?  Chances are, you won't ever be refinancing to get a lower rate again!  Not only that, but points paid on a loan are usually tax deductible, depending on your income bracket (check with your CPA or tax preparer for details).

There are a variety of rate and point combinations available. When you look at different loan programs, don't look just at the rate -- compare the whole package. Federal law requires lenders to publish their loans' Annual Percentage Rate, or APR. The APR is a tool used to compare different terms, offered rates, and points.  I can't count the number of times clients have thought they were getting better deals, until I told them to look at the APR, which tells the real story!

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Tags:
apr
100 financing
no down payment
0 down
benchmark mortgage
louisiana mortgages

Spam prevention
Show All Comments
Rainmaker
432,031
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

The rates are still so low.  I can remember 21%!  When I bought my first home, our rate was 8 1/2%.  I think people need to realize that it is good out there!

It's a Good Life!

Fran Rokicki

Aug 30, 2007 06:51 AM #1
Rainer
407,471
Sean Allen
International Financing Solutions - Fort Myers, FL
International Financing Solutions

I agree 100% with both Gareth & Frances.

Rates are low in comparison to past years.

Sean Allen
The Mortgage Professionals
www.TheMortgageProfessionals.biz

Aug 30, 2007 07:08 AM #2
Rainer
41,968
John Klassen
M & T Bank - Kingston, NY
Since we are nearing the end of the year, people who purchase their home now should consider points. Points used to buy down the rate are considered mortgage interest. They would be paying the points now and getting money back for them sooner a=than if they bought at the beginning of the year.
Aug 30, 2007 07:16 AM #3
Rainer
11,647
Gareth Bourriague
Benchmark Mortgage of Louisiana - Baton Rouge, LA
Benchmark Mortgage

Sean/Fran ~ Thanks for the comments!

John ~ Great point!  =)

Aug 30, 2007 10:17 AM #4
Rainer
37,672
Aaron Gordon
Branch Manager - Las Vegas, NV
Home Loan Consultant - Las Vegas, NV

Gareth--- Great post.  I can't tell you how many times borrowers say I want a loan with "no points" or "no fees."  

When I say, "no problem" and explain to them how it works, and that no one works for free, I then show them what that does to the interest rate.  They always want to see it the other way.

 

Sep 02, 2007 07:35 PM #5
Rainer
11,647
Gareth Bourriague
Benchmark Mortgage of Louisiana - Baton Rouge, LA
Benchmark Mortgage
Aaron ~ ...and then there are the hard-headed ones who are convinced they can get a free loan!
Sep 04, 2007 07:22 AM #6
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainer
11,647

Gareth Bourriague

Benchmark Mortgage
Ask me a question
*
*
*
*