Mortgage Points – What are These Crazy Costs?

Mortgage Points

Are you considering financing to purchase a home? Then make sure you understand the crazy cost of mortgage points?

What are Mortgage Points?

Mortgage points are optional fees paid directly to your lender at closing in exchange for a reduced interest rate on your loan.  It’s known as buying down the rate. A lower interest rate can save you lots of money over the life of your loan by lowering your monthly mortgage payment. But points come with a cost.  Lenders get you one way or another.

The Two Types of Points

• origination points – The lender pockets this fee for writing the loan and, as a general rule, it’s non-negotiable and not tax deductable.
• discount points –  These lower your interest rate and can sometimes be deducted, making them an appealing option for long-term home ownership.

Is it Worth It?

If your staying in your home long-term, calculate the break-even point when your monthly savings from the lower rate equals the upfront cost of the points. If your staying in the home past this time period, you can save money. It’s that simple.

Say you’re borrowing $500,000

Monthly mortgage payment with a 7% interest rate      $2,917          Additional monthly payment $125

Monthly mortgage payment with a 6.7% interest rate    $2,792         Cost of Points $10,000

It will take approximately 6.7 years to break even.

Make sure to discuss these options with a professional mortgage broker, banker or financial advisor to understand how these fees may apply to your particular situation.

If you need mortgate advise or are interested in the current rates, speak with several different lenders to learn what your options are. Reach out and I’ll connect you. 305.898.1852