It’s almost tax time and one of the questions that home owners will see on their tax form is
about mortgage points. Mortgage points, also known as discount points, represent the fee that
a buyer pays to a lender for providing a reduced interest rate on a home loan.
The statement people receive from their mortgage holder at tax time will indicate if there are
mortgage points. The process is called “buying down the rate” within the banking industry.
The terms and fees surrounding the practice vary widely among lenders. Choosing to buy down
the rate is a personal decision and there are several things to consider before deciding to do so.
Mortgage points can also be purchased to help people get pre-approved for a home loan.
More Money at Closing
Buyers will need to have more money up front at closing time when they sign the purchase
agreement with the seller. The costs at closing can quickly add up, when combined with
down payment amounts ranging anywhere from 6 to 20 percent, depending on various factors.
Length of Ownership
Individuals will also need to consider how long they’ll own the home and the time it will require
for them to recoup the cost of the mortgage points. One point equals one percent of the loan
amount. It can be beneficial if buyers intend to keep the home until its paid off. However,
individuals will take a considerable loss if they sell early or refinance.
Another element to consider is the amount of the monthly mortgage payment. When mortgage
points are employed, it can reduce the monthly payment amount by 0.125 to 0.25 percent or
$1,000 for every $100,000. For a fixed rate mortgage, lending institutions maintain that buying
points may be beneficial, but much will depend on the terms of the mortgage.
A home is a significant investment and one of the ways in which individuals create wealth.
However, individuals need to weigh a higher down payment against lower monthly payments
and the time it will take to pay off the mortgage.
If you are interested in learning more or listing your home at a flat fee, contact us today at 954 213 5310