Mortgage Rates. When Should You Pay Discount Points?

Mortgage Rates.  When Should You Pay Discount Points?

As rates have started creeping up a bit I have been getting asked more frequently about the option to “buy down” or pay points for a lower rate. Discount points are an effective way of reducing your interest and monthly payment, however they are not appropriate all the time. Every client has a different plan and mortgages should never be treated as “one size fits all”.

To determine whether buying down your rate is beneficial you need to determine a couple of factors. First, how much equity do you have? With most markets on the decline, do you still have enough equity in your home to be able to afford a higher cost loan? For purchase transactions, those higher costs will result in a higher down payment amount in most cases so you need to be prepared for an added expense at closing. The second thing you will need to know is you future plans regarding your home. Are you a first time home buyer looking at a starter home? Are you moving from your starter home to the house you plan on living in for the rest of your life? Do you treat Real Estate as an investment and you plan to sell as soon as the market is right? What is your specific goal?

The reason you need to be able to answer those questions is because that is how you will determine whether or not buying down your rate is appropriate for you. It has to do with finding your “break even” point. Ask your loan officer to run a cost analysis, find out how long you will need to stay in the home to make your added loan costs be a true benefit to you.

Points have a perception of being a negative but it all has to do with your circumstances. In the right situation, Points(or buy-downs, discounts, whatever you want to call them)can provide a tremendous benefit and save you THOUSANDS of dollars over the life of your mortgage.

If you want to know if discount points are right for you, call me for a free cost analysis.

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Mortgage Rates.  When Should You Pay Discount Points?