Is It A Good Idea To Pay Points On A Mortgage

Is It A Good Idea To Pay Points On A Mortgage 1

Is It a​ Good Idea to​ Pay Points on​ a​ Mortgage?
When you​ go to​ closing on​ a​ mortgage,​ you​ have a​ number of​ options available to​ you​ .​
One of​ these is​ to​ pay points so that the​ interest rate can be reduced .​
Here is​ what you​ need to​ know to​ help you​ determine if​ you​ should pay points on​ your mortgage .​
A mortgage point is​ equal to​ 1% of​ the​ total cost of​ the​ mortgage .​
So,​ if​ you​ are getting a​ mortgage for $150,​000,​ then it​ will cost you​ $1,​500 per point .​
For each 1% of​ interest,​ there are 8 points .​
In other words,​ it​ will take 8 points to​ bring down the​ interest rate one full percent .​
Each point paid will reduce the​ interest percentage by 0.125% .​
Usually,​ you​ can see some savings if​ you​ bring it​ down even one point .​
Paying points at​ closing can reduce your interest and bring you​ savings,​ but not everyone can benefit from it .​
Generally,​ you​ would need to​ stay in​ your house for a​ number of​ years - it​ really will not help if​ you​ are not going to​ stay long .​
The reason for this can be seen in​ the​ following example .​
This will show you​ how to​ determine how long it​ will take to​ break even .​
If you​ buy a​ house for $100,​000 at​ 7.5% interest,​ then you​ would be paying around $700 per month .​
If you​ spend $1,​000 to​ buy one point,​ this will reduce your interest to​ $7.375%,​ and now you​ will have a​ payment of​ about $691 .​
The difference in​ your payments is​ now around $9 .​
By taking the​ $1,​000 that you​ paid,​ and dividing it​ by your amount saved ($1,​000 / $9),​ that will give you​ an​ answer of​ 111,​ which is​ the​ number of​ months you​ need to​ live there in​ order to​ break even .​
In the​ above example,​ you​ would need to​ live in​ that house for 9 years and three months to​ break even .​
This is​ why it​ is​ necessary that you​ want to​ live in​ your home for a​ while before you​ begin to​ realize any savings .​
If you​ plan on​ staying for a​ shorter time period,​ then you​ may want to​ reduce your costs other ways .​
This can be done through paying a​ larger down payment,​ making sure your total indebtedness is​ low and your credit score high,​ or​ by simply paying more each month .​
In order to​ know which approach would be more beneficial,​ be sure to​ go online and find some good mortgage calculators to​ help you​ find out.
Also,​ when you​ go to​ get your mortgage,​ get a​ number of​ quotes from different lenders and find out which one offers the​ best deal .​
All you​ need to​ do is​ to​ compare them carefully in​ terms of​ interest rates,​ fees,​ total cost,​ and what options you​ have .​
Before long,​ you​ will find that choosing the​ best of​ the​ offers will enable you​ to​ save possibly thousands of​ dollars over the​ lifetime of​ the​ mortgage.

Is It A Good Idea To Pay Points On A Mortgage

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