In addition to shopping for the best mortgage rate and introductory rate programs like temporary buydowns, leveraging mortgage discount points can help make homebuying more affordable.
What are mortgage discount points and how could they benefit you as a buyer?
Couple Taking A Break And Sitting On Sofa Celebrating Moving Into New Home With Champagne
Mortgage points are fees that a buyer pays the lender upfront to reduce the interest rate of a home loan. This is also called “buying down the rate” where buyers are essentially prepaying interest.
One discount point costs 1% of your mortgage amount (or $1,000 for every $100,000.)
As always, before making a home purchase or buying points, know your budget and ask yourself these questions:
How long you plan on staying in the home is important because discount points have what is known a “break-even period” when you will recover the money spent on points. If you don’t plan on being in your home long-term, it is not typically recommended you pay discount points because you may never realize the benefit of your extra investment.
When deciding whether to use discount points, remember that they are not lender credits where you pay higher interest rates to offset closing costs. Nor are they a temporary buydown, where the buyer puts down a deposit upfront to temporarily reduce mortgage interest payments.
Before using discount points to reduce your interest rate, consult with your lender. They will help you determine what makes the most financial sense for you and your unique situation.
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