Using Points To Cut Your Interest Rate
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Using Points to Lower Your Mortgage Interest Rate
Summary:
In real estate circles, it's often advised to steer clear of paying points when securing a mortgage. However, this isn't always the best strategy.Understanding Points in Mortgages
What Are Points?
Points refer to upfront fees paid to a lender to secure a mortgage. These are a way to modify your loan terms. If you have a strong financial profile?"good credit score, stable income, and a significant down payment?"you might pay fewer points, or none at all. Surprisingly, there are situations where requesting to pay points could actually benefit you.
The Relationship Between Points and Interest Rates
Points and interest rates share a beneficial relationship. Generally, the more points you pay, the lower your interest rate. Although this might not apply in situations of poor credit, it’s widely applicable.
Over the life of your loan, the total cost of points will never approach the amount of interest you'll pay. If you plan to stay in your property long-term, focus on securing the lowest possible interest rate. This is where points can be advantageous.
Strategizing with Points
If you have ample cash when purchasing a property, consider paying more points to reduce your interest rate. Ask your lender how much they’ll lower the rate for each point paid, and be sure to get this in writing. Use a mortgage calculator to understand potential savings from these reduced rates and see how they affect your monthly payments. Compare these savings against the cost of the additional points to make an informed decision.
Conclusion
Contrary to popular belief, points aren't necessarily a negative aspect of the mortgage industry. When used strategically, they can lead to significant savings over the life of your loan.
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