After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
Does Buying Points Make Sense For Your Mortgage?
If you’re trying to get a good deal on Kansas City mortgage rates, you may have heard that you can buy points on your mortgage. Essentially, you are “buying down” your mortgage rate. But is this the right move for you and when should you do it?
What Does It Mean To Buy Points?
Buying points on your mortgage means that you are buying some of your for a lower interest rate over time. There are two types of points:
- Origination points are fees that you can pay to lenders at closing for evaluating, processing, and approving your loan. These points are not tax-deductible. You can typically negotiate these costs.
- Discount points are fees you pay to buy some of your interest upfront in exchange to lower their interest rate over time. These points are tax-deductible for the year in which they were paid.
These points will be included in your closing costs, so it is vital that you have the financial means to pay for them. Otherwise, you may find yourself paying more than you can realistically afford. In some cases, you may be able to negotiate with the seller to pay for your points.
When Is Buying Points Beneficial?
If you want to pay as little of closing costs as possible, it would not benefit you to pay points on your mortgage. However, if you plan on staying in your home for a significant amount of time and want to pay off your mortgage early, buying points may be a viable option for you.
Buying points could help you lower your Kansas City mortgage rate, but only if you are planning on staying in your home for a very long time. That way, the cost of purchasing points doesn’t outweigh the benefit of a reduced interest rate.
Alternatively, if you want to pay off your mortgage early – and have the money to do so – paying points to lower your interest and mortgage rates could benefit you in the long run.
Work Closely With Your Lender & Financial Advisor
When deciding whether or not to buy points to lower your Kansas City mortgage rate, you will need to work closely with your lender and financial advisor. They will be able to advise you as to the best course of action based on your unique situation.