Lowering
Your Interest Rate
Mortgagepoints are the currency of the system designed to give you the option of making
an advance payment on the interest of a
mortgage to lower your monthly interest rate. These points are also called
discount points. Each point is equal to 1% of the loan amount.
These
discount points benefit those who are planning on staying in their home for a long period of time. The amount of prepaid
interest that is paid through the points
discounts the amount of interest paid over time. For example, if you have a 30-year $200,000 mortgage with an
interest rate of 4%, and you pay for 2
discount mortgage points that decrease your interest rate by 0.4%, then you would save $2,185 over 10 years.
Whether it
is beneficial for you to pay for mortgage points depends ultimately on how many
years you plan to stay in your new home and how much available cash you have
after origination fees and closing costs. Your break even point will be based off of interest rates and the amount of the
loan. It is also advised to only buy points
if you’re selecting a fixed-rate mortgage,
and not an ARM.
Getting Help Paying for Points
Sometimes
new home developers and sellers of homes have the ability to help pay for your
points in order to incentivize you to
purchase. You may be able to negotiate with them to save cash for other closing
and moving costs. Speak with our professionals at Mortgage Investors Group to
verify any third party contributions, as there are defined guidelines for this
process.
