Mortgage Rate Update: What Are Points and When Should You Pay Them?

ImagePoints are up-front fees paid to obtain a better interest rate on a loan. One point equals one percent of the loan amount. A lower interest rate may result in a lower monthly payment, but it is important to consider how long you intend to be in the loan, and to compare current rates to historical market trends.

If you take out a $300,000 mortgage and decide to pay one point, this translates into an up-front closing cost of $3,000. Paying a point up front saves $100 a month but it will take 30 months to recuperate the cost of that point. If you decide to refinance or sell the home before the 30-month mark, your money is lost. In this case, you would benefit financially by remaining in the home longer than the 30 months.

Rates run in cycles. When rates are at historical lows, it is sensible to pay points if you plan to live in the home for an extended period of time. It is unlikely that rates will go down; hence, there will be no need to refinance.

When rates are up, there is a strong likelihood that they will come down. This is no time to pay points. The chances of refinancing in the future are extremely high, and you will likely not be in the loan long enough to recuperate the cost of the points.

 

Source:

Ryan Buckholdt
Mortgage Consultant

Market Update Newletter- May 2013

http://www.ryanbuckholdt.com

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About MikeCastleRealtor

Mike Castle Real Estate Broker CalBRE#00620895 Cell: 831-588-1988 Fax: 831-435-7377 E-mail: mike.castle@mikecastle.com www.mikecastle.com Century 21 M&M and Associates 1500 41st Avenue, Suite 100, Capitola, California, 95010
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One Response to Mortgage Rate Update: What Are Points and When Should You Pay Them?

  1. loans site says:

    So – Mortgage Rate Update: What Are Points and When Should You Pay Them?
    | California Real Estate: By Mike Castle of American
    Dream Realty – I would never have thought it would be as good reading as it has
    been. Now I have to finally go and do some work!

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