Using Discount Points to Lower Your Interest Rate
/Interest rates are higher than they have been in years and it’s making mortgages very expensive. Lucky for us, Dan Hubrich of Mountain View Mortgage is back and this month he’s explaining how to use discount points to lower your mortgage interest rates. This can potentially save you thousands of dollars over the life of your loan.
This month let’s talk about “discount points”. Discount points are when a borrower wants to pay an upfront fee at closing for a lower permanent rate on their mortgage. Just because the going rates might be 6% doesn’t mean you can’t still get a 5% rate. You just have to pay for it upfront. Why would anyone do that? Well the longer you stay in the home, the more you’ll save with a lower rate. It’s impossible to form a blanket statement if it’s a good idea or not to buy your rate down since everyone’s situation is different. If you are pretty sure that you’ll own your home for several years then buying the rate down with a discount point can be a terrific idea. It’s considered a normal closing cost so it can be rolled into the loan on a refinance and sellers are allowed to pay for it as part of your negotiations when you buy a home. So it’s definitely a good idea to at least look at your options. Typically I like to see the break even point in the 3-4 year range (we simply divide the cost of the lower rate by the monthly savings to see when you’ll break even. If you are confident you’ll own the home longer than that, then it’s a guaranteed savings for the next 26-27 years that you have the mortgage and those savings can really add up. However the opposite is also true. If you know you’re going to sell the home in a couple of years for whatever reason, then you should definitely NOT buy the rate down because you won’t see any real savings. If that’s your situation, you can even pick a higher rate and then get a lender credit to help cover closing costs. Lot’s of options to consider! Let me know if I can run any specific scenarios for you or answer any questions.