When does it make sense to pay points to get a mortgage? 3 Considerations

Since the vast majority of those who buy a home or any other form of real estate use some type of mortgage vehicle, it could be useful and / or beneficial to better understand and appreciate, as far as possible, the many variables and / or factors , involved and related! We often discuss factors such as loan term / duration, interest rates, variable versus fixed rate, etc. Few people seem to fully understand what the dots mean when it comes to this process and transaction. When someone pays points, when purchasing a mortgage, they must realize that one point is equal to one percent of the amount borrowed. For example, paying 1% on a $ 500,000 mortgage means paying $ 5,000 up front. Sometimes this is necessary due to a sub-optimal credit situation, and at other times it can be used to amortize the rate that could be paid on a monthly basis. This article will briefly discuss and examine 3 considerations in determining whether paying points is a good strategy and / or makes sense for the borrower.

1. You need additional interest amortization, this year: Many people have variable incomes from year to year! It might make sense, since the mortgage interest is still tax deductible, for these people, to pay the points, to have a higher amortization, in the year, when they are in a higher tax bracket. However, one should discuss this thoroughly with their trusted tax professional before using this strategy / approach!

2. You have current funds, but you need a lower monthly maintenance cost: Imagine, if one has sufficient funds, to pay the additional amounts, necessary for the down payment, but does not qualify, for a loan, with the highest monthly payment, and / or needs to have a lower monthly payment, to be qualified! In these circumstances, paying points can make sense and be an effective strategy and / or approach.

3. Amortized mortgage interest rate: When you prepay a portion of the total interest required to obtain a mortgage, by paying points, you will receive a lower interest rate from the lender. Again, one should thoroughly discuss, with his financial and tax professionals, whether this approach makes sense to him.

Should you pay points when shopping for a home loan? There is no single answer that fits all answers and / or answers, and the answer is: It depends!

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