Should Virginia Beach Home Buyers Pay Discount Points?

Many Virginia Beach home buyers ask if they should pay discount points on their mortgage. There are many ifs, ands, and buts with this question. So, let's start with what discount points are.

Discount points are an upfront fee charged by the lender to increase his yield or the money he makes on your loan. One point is equal to 1 percent of the loan balance. If you borrow $100,000, one point equals $1,000.

Points are paid upfront at the time of closing. The number of points you pay to the lender is negotiable. The more points you pay the lower your interest rate will be.

Some buyers would rather pay more upfront points to lower their interest rate, or what we call 'buying down the rate.' Others feel it is more beneficial to keep their upfront costs low and have a little higher monthly payment.

One thing to consider when making the decision to pay points or not is how long you think you will actually be living in the house and how long it will take you to recoup the upfront monies you paid.

If you will only be in the house 2-3 years, you probably won't benefit from paying higher upfront fees. But, if you plan to live in the house long term, say 10-15 years, paying points is probably a better option.

Discount points are tax deductible. This cost won't show up on your lender's year-end accounting of your interest payments, so be sure to hold on to HUD-1 from closing to provide to your accountant.

Confused? You are not alone. Everyone's situation is different. If you have questions about loans and discount points, send us an email or give us a call, 866-222-0158 #550. We are glad to help. We are happy to put you in touch with a reputable lender, also.

In the meantime, visit our website to view all Hampton Roads real estate listings.