Mortgage points are also known as discount points. They are fees a homebuyer pays directly to the lender getting reduced interest rate in return. This is also called “buying down the rate.” Basically, the borrower pays some interest in advance with an exchange of a lower interest rate over the length of your loan. Each point a borrower buys costs 1 percent of the total loan amount. Buying points to decrease your monthly mortgage payments may be practical if you choose a fixed-rate mortgage and thinking of owning the house after reaching the break-even period. The break-even period is the period or time it takes to recover the cost of buying points.
Are Mortgage points worth it?
When you are thinking if points are right for you, it helps to run the numbers. Check whether you have the money available to buy points in advance, down payment additional, closing costs and reserves. At the same time, see how long you plan to own the house. Your lender can help you in deciding whether paying points is the best for you.
Additional Information about Mortgage Points
- The lender and the marketplace influences your rate cutback and it can change after the fixed-rate period for your mortgage ends. That’s why it’s necessary to make sure your break-even point happens well before the fixed-rate expires.
- Contact a tax expert to check if buying mortgage points could affect your tax standing.
Origination Points vs. Discount Points
Discount points appear as prepaid interest that can be used to bargain a lower interest rate for the length of a loan.
Origination points are lender charges that are charged for completing a loan. Origination points don’t save borrowers money on interest fees but they can sometimes be rolled into the balance of a loan and paid off a time pass by. While discount points have to be paid in advance.
How To Purchase Mortgage Points
Mortgage discount points are bought prior to completing a loan whether that’s a new mortgage or a refinance. They can’t be bought after completing the loan.
Two ways to make a purchase:
- Pay up front
- Roll the cost into the mortgage
From a financial view, paying up front is usually the better choice. Some mortgage lenders encourage the purchase of discount points as a mortgage prepayment feature. While endorsed as a way to reduce interest fees, be aware of the pros and cons before buying mortgage points.
Pros and Cons of Buying Points on a Mortgage
Pros
1. Lower interest rate that results to lower monthly payments for your home mortgage
2. Can make a more expensive loan more affordable
3. Can be tax deductible
Cons
1. Can increase closing fees
2. Uses money that could have paid for the down payment, if paid in advance
3. Won’t build equity in a property
4. Only those who own a home for years will break even on all the cost
When is paying mortgage points worth it?
When you purchase discount points, you reduce your monthly payment but you multiply the beginning charges of your mortgage.
Instead of purchasing mortgage points, many borrowers rather go to make larger down payments for them to build equity in their homes faster and pay off their mortgages as soon as possible which is another way to save money on interest payments.
But in some cases, buying mortgage points may be beneficial when:
- You need to reduce your monthly interest charges to make a mortgage more affordable
- Your credit score is not eligible for the lowest rates available
- You have extra finances to put down and want the advance tax deduction
- You plan to keep your house for a long time so you may regain the cost
But this really only applies to discount points. Origination points are completing costs paid to a lender in order to get approved for a loan.
Can you Bargain Points on a Home Mortgage?
When you apply for a home mortgage, both discount points and origination points are actually negotiable. But practically, that does not happen all the time. The only way to be sure is to have a talk with your loan expert once you’ve been approved for a loan.
If you want to successfully bargain either discount or origination points, one of the best recommendations we can advise is for you to apply for mortgages from several lenders. Then when you get loan offers, you can let each lender work to earn your trust by negotiating lower rates or closing fees.
You don’t need to think about this hurting your credit score. As credit bureaus treat credit checks from several mortgage lenders within about a 30 days period as one credit check. They conclude that you’re shopping around for the best offers which you should do.
Benefits of Mortgage Points with Australian Finance and Mortgage Solutions
At Australian Finance and Mortgage Solutions, we have a clear understanding about the importance of maximising your refinancing benefits. By being strategic thinkers, we are making sure that every client is weighing mortgage points and making sure that our experts can help you.
Schedule a Consultation Now!
Contact us today to schedule a customised consultation with one of our experienced home loan broker in Sydney. We’ll assess your current financial standing, discuss your refinancing goals, and explore how mortgage points can work according to your preference.
Explore Your Options
Our team will show you lots of refinancing options including the option to buy mortgage points. We’ll give understandable and fair guidance to help you make educated decisions that align with your long-term financial goals.
You can confidently go through with your refinancing plan knowing that you’re maximising your savings potential with mortgage points with our full support. We’ll be with you even in the complexities of the process and we guarantee a seamless experience from start to the end.
Achieve Financial Freedom with Australian Finance and Mortgage Solutions
By considering mortgage points into your refinancing steps with Australian Finance and Mortgage Solutions, you’re not just saving money – you’re building the way towards financial freedom. Whether your goal is to eliminate debt or simply enjoy greater peace of mind, our dedicated experts are here to assist you every step of the way.
Don’t let the opportunity to have your refinancing savings taken for granted. Take charge of your financial standing today with Australian Finance and Mortgage Solutions. Schedule your consultation now!
