Some Information on the Mortgage Points
Mortgage points are what they also call discount points. They are actually fees which are paid directly to the lender at closing in order to get a reduced interest rate. This is called the buying down the rate that can certainly lower your mortgage payments every month.
You must know that a point would cost a percent of the mortgage amount. It is very important that you are going to pay some interests up front so that you can have a lower interest rate over the term of your loan. The longer that you are planning to own the home, then the more points can help you save on interest on the life of your loan.
It is really essential that you will be able to consider how long it takes so that you can recover the cost of those buying points. This is actually called the break-even period. So that you will be able to get an idea on this, you should divide the cost of your points on the amount that you will be able to save on such monthly payment. Such resulting number is going to be the length of time that it would take for the monthly payment savings to level or equal the cost of your points.
There are several things that you have to know when it comes to mortgage points. The terms on such buying points can differ extensively from every lender. These are the points that you have to consider. The interest rate that will be reduced from buying points is not actually set and such would mean that this will have to depend on the lender and also the marketplace.
The buying points may give you a tax benefit. You need to call the tax professional for you to know if what you do can affect such tax situation.
You should be able to know that the points for ARMs would give a discount on the interest rate of your loan only on the initial fixed-rate period. You must run the numbers so that you can be sure that the break-even point would occur really well before such fixed-rate period would expire.
So that you will be able to determine if the points are great for you, you have to know if you have the cash to purchase points upfront, aside from the down payment, the reserves and the closing costs. Moreover, you need to consider how long you are actually planning to own that home.
Buying points for you to be able to reduce the rate can make sense when you would choose the fixed-rate mortgage and you plan to own the home after you have reached the breakeven period. On certain circumstances, purchasing mortgage points if you would buy a home may save you a great amount of money over the term of the loan.