What You Need to Know About Mortgage Points, Part 2

In part one of this two-part blog series, we went over some of the basics and terms associated with mortgage points. Used to represent a single percentage of the total loan amount, many buyers choose to pay mortgage points up front, at the same time as the down payment, to help lower their interest rate over the life of the loan.

At Primary Residential Mortgage, we’re here to help you understand if buying mortgage points is the right move given your finances and expectations for the future. In today’s part two, we’ll go over some of the broad pros and cons of using mortgage points, plus home loan situations where mortgage points might make sense for you.

Pros of Mortgage Points

There are several distinct benefits that come with purchasing mortgage points during your homebuying experience:

• Lower interest rate: Points serve as a way of paying down a portion of the loan’s balance in advance – this therefore lowers the total principal amount to be paid, which in turn lowers the interest rate that’s often required. This tends to meant that over the life of the loan, you pay far less in interest.
• Monthly payment: In addition, your monthly payment will be lower if you use mortgage points because there’s less total sum to divide by for each individual month.
• Equity: For those looking to build equity in their homes quickly, points are the way to go. They help you own larger portions of the home earlier.
• Tax deductible: Most mortgage points are fully tax deductible.

Cons of Mortgage Points

Now, there are a few downsides to purchasing mortgage points as well:

• Larger up front cost: You don’t get that lower interest rate for nothing – it comes because you’re paying more to begin with, meaning you can’t use these funds elsewhere.
• Break-even point: We discussed break-even point in part one of this blog – in some situations, it will take a long time to achieve it.
• Sell or refinance: And if you want to sell or refinance before reaching this break-even point, you’ll lose money.

Situations Where Mortgage Points Make Sense

A few scenarios where paying mortgage points makes a lot of sense:

• If you plan to be in the home for a long time
• If rates are low at the time you’re making your purchase, meaning refinancing down the line is less likely
• If tax deductions at the end of the year would significantly benefit you
• If you currently occupy the property, but are looking to rent it out later and can get a low rate right now

For more on whether you should or should not consider using mortgage points for your loan, or to learn about any of our mortgage loan programs, speak to the staff at Primary Residential Mortgage today.

*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Florida Office of Financial Regulation MLD646. Opinions expressed are solely my own and do not express the views of my employer.