Should I Pay Mortgage Points?


– Hey guys, Austin Schneider here. If you are in the process
of getting a home, you may have heard the
term called a Point. So Point is a fee paid to a
lender, either at closing, or it can be paid over
the course of the loan, but you will have a higher interest rate. What we’re going to do,
is we’re going to give you some ideas of when you
might want to pay the points up front, or if it may be
best to spread it across the loan and have that
higher interest rate. You may want to pay the points up front as a part of your closing costs, if you plan to own the
home and live in the home for around five to seven years plus. The reason we say that,
five to seven years plus is a good kind of stopping point for you, a good marketing point for you, is because if you pay the point up front it’ll reduce your interest rate throughout the length of the loan, which will just make it
easier for you to enjoy that low interest rate while
you’re living in the home. One reason not to pay the points up front, is if you are planning to live in the home for three to five years,
it may make sense to spread the points across
the length of your loan, and because you won’t be
in the home that long, you’re probably not
going to recoup the costs from the higher interest rate than you would if you
were to pay it up front. Another reason why you may want
to pay these points up front is if the sellers are paying
for your closing costs. You can easily roll these points
into the seller’s expense, versus a buyer’s expense, and
it makes it easier for you to have that low interest rate among the lifetime of your loan. Another reason why you may
not want to pay those points up front is if you are looking
to save money out of pocket when you’re going to purchase your home. Because the point is a
percentage of the loan amount, it is another fee that’s associated with, say your down payment,
think about your furniture. Rather, spread it across
the length of your loan and forget it and maybe
refinance later down the road. Another reason why you may want
to pay these points up front is if you need a lower rate to qualify. So if your debt to income
ratio does not qualify for the loan, if your
monthly payments are not qualifying you for the
specific type of loan, if you pay these points
up front it’ll lower your interest rate, which will
lower your monthly payment, which will allow you to qualify better. Another reason why you may
not want to pay the points up front and have it spread
across, is if you can get a better return on
investment elsewhere with it. It totally depends on
your unique situation and what the market is doing in your area, but it could also make
sense to use that money in a different investment pool. And the last reason why you
may want to pay these points down up front, is if cash
flow is more important than the initial savings. Because you’ll be buying
down this mortgage, your interest rates are going to be lower, so it’s going to make your
monthly payments lower, and you’re going to have more cash flow; whether that’s from your income or if it’s a rental property. And the last reason that you may not want to pay these points up front, rather spread it across
the length of your loan, is if savings are more
important than cash flow. If you want to save a little
bit more money up front, have that comfort barrier
for you in yourself, and not really necessarily worry about the cash flow that you’d
be saving over the length, take the higher interest
rate and possibly refinance later down the road if
it makes sense for you. All right, guys. Thanks so much for watching. For more on this topic, visit us online at the
TheMortgageReports.com. Thanks so much for watching. We’ll see you on the next one. (upbeat electronic music)

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