"Points" to Consider

Points are often a misunderstood concept for home buyers.

Points are nothing other than interest paid up front (at the time of closing) to obtain a lower interest rate. One point equals one percent of the mortgage amount. So if you chose to pay one point on a $200,000 mortgage you would pay $2,000 up front. Generally, paying one point will buy down an intere4st rate by a quarter percent.  It’s not a hard and fast rule, but it usually works out close to that.  Ask your PMAC loan professional for current interest rate information.

People are often tempted to pay points because it will reduce their interest rate and lower their monthly payment. But you need to be careful because paying points doesn’t always pay off. The question you need to ask yourself is,

“How can I best use the $2,000 and is it going to help me obtain my financial goals?” 

You can pay a point, you can invest it, you can pay down other debt, or you can put it toward a bigger down payment on your house.

Just so you know, the average family changes residences about every nine years, according to the National Association of Realtors.  And first-time homebuyers move more frequently than that.  The Mortgage Bankers Association says the typical homeowner refinances at least once in nine years.  Therefore, they say that the average life of a mortgage is less than five years.  So make sure you review this with your PMAC Loan Professional to make certain paying points to further reduce your interest rate fits your plans to stay in this home.

Another bit of information good to know is that the points paid on a first mortgage when you purchase a home are fully deductible on your federal taxes that year.  That’s one of the selling points of points to begin with.  But on a refinance, you must amortize those points over the life of the loan. So, on a refinance with $3,000 of points paid, you get to deduct just $100 per year on a 30-year loan.

With all being said, just make sure you take a look at whether or not it is going to be beneficial to pay money up front for a lower rate.