Thinking of Buying Down Your Mortgage Rate and Paying Points??? Better read this short article.

As a borrower, deciding whether to buy down the interest rate by paying points is a decision that depends on your individual circumstances and financial goals. Remember there is MUCH more to a mortgage than "what is my rate and what is my payment", let me explain.

I was working with an experienced consumer who had bought and sold several homes over the years. It came down to me and Brand X. The borrower was getting good information from me, but our "rate was out." He sent me a lender estimate. Brand X was charging him 2.125% in POINTS. The number worked out to be $9555 in upfront fees. I explained to him, in detail, it would take 71 months to be ahead. If they were to sell the home or refinance they would lose all that money. In addition, Brand X's closing cost were $10,500 more expensive than going with me.

Let's look at the advantages and disadvantages of paying points to help you make an informed decision.

Advantages of paying points:

• Lower interest rate: Paying points upfront can lower your interest rate, resulting in reduced monthly mortgage payments over the life of the loan. This can save you money in the long run, especially if you plan to stay in the home for a significant period.

• Tax deductibility: In many cases, the points you pay at closing may be tax-deductible. Consult with a tax professional to understand how this applies to your specific situation.

Disadvantages of paying points:

• Higher upfront costs: Paying points requires a cash outlay at closing. Each point typically costs 1% of the loan amount. If you're tight on cash or prefer to allocate your funds elsewhere, paying points may not be ideal.

• Breakeven period: There is a breakeven period to consider when deciding whether to pay points. It refers to the length of time it takes to recoup the upfront cost of the points through the monthly payment savings. If you don't plan to stay in the home beyond the breakeven period, paying points may not be worthwhile.

• Opportunity cost: By paying points, you're essentially tying up funds that could be used for other purposes such as investments, emergency savings, or paying down higher-interest debt. Consider whether the potential savings from lower interest outweigh the benefits of utilizing the funds elsewhere.

In the end, I dissuade my borrowers from paying points unless the seller is paying an amount toward closing costs. That is 95% of the time. Each person's situation is different I work to personalize your home financing needs.

Ultimately, the decision to buy down the interest rate by paying points depends on your financial situation, future plans, and how long you expect to stay in the home. It's advisable to compare the total costs and savings associated with different loan scenarios, including points and no points, and consider the trade-offs before making a decision. Consulting with a mortgage professional can also provide valuable insights tailored to your specific circumstances.

I am here to help do the next right thing with your home financing needs. Let me know how I can help.

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To Your Success!!!

Other articles by?Chris Shrader

Tales of a Mastermind Co-Author Chris Shrader