Boston North Shore mortgage loan experts say over 6 million people nationwide will buy homes next year. Statistics expect roughly 2 million will be first-time homebuyers. Both first-time buyers and others always wrestle with whether or not to pay “discount points” on their mortgage.
The Boston North Shore Mortgage Loan: Points?
Just what the heck are discount points, anyway? Mortgage discount points are a one-time, upfront closing cost designed to discount the existing mortgage interest rate. One point is equal to 1% of your loan amount. Your interest rate is normally reduced by .25% for each discount point.
Since paying discount points lowers your interest rate, the process is often called “buying down” your rate. As an example, on a mortgage amount of $400,000 at 4% interest, you could elect to pay one discount point or $4,000 and lower your interest rate to 3.75%. For a borrower planning to be in that home for as long as a 30-year term, the interest savings over the life of the loan can be substantial.
Should you pay discount points? The answer is a resounding “that depends.” Paying discount points can be expensive. Plus, it will mean you have to come up with more money at the loan closing. Still, it may make sense — especially if you can negotiate with the seller for him to pay part or all of the closing costs.
Paying points to lower your mortgage interest rate could be a good investment over time. However, if you plan to sell your home in a few years or refinance your mortgage you probably won’t recoup the amount you paid in discount points.
Because discount points are used to “buy down” your interest rate, they are usually tax-deductible.
Mortgage experts recommend you consider paying discount points as a luxury, not a necessity. If paying one or more points puts you in a bind by requiring you to pay additional money at the closing, it’s probably best not to do it.
Okay, what’s next? Consult your real estate agent about concessions the seller may make as part of your offer to purchase a home. You never know what you may get until you ask. Discuss discount points with your Boston North Shore mortgage loan professional to find out your best course of action.
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