Mortgage points are simply an upfront investment you make to lower your interest rate. As a result, you bring your monthly mortgage payment down right from the start to make your home more affordable.
How Do Mortgage Points Actually Work?
Buying a point reduces your interest rate for the entire life of the loan. So, if you buy down your rate by a quarter or half percent, you see that savings on your very first payment. However, it requires a cash investment upfront. In fact, this fee sometimes equals one to three percent, or even more, of your total loan amount.
When Does Paying Points Make Financial Sense?
You must stay in the home long enough to recoup your upfront investment. Because you pay a large fee at closing, you need to calculate whether the lower monthly payment makes up for the cash you spent. If you plan to live in the house for a long time, points make great financial sense. But if you plan to move quickly, you might not make that money back over time.
Spokane Market Nuance: Negotiating Seller-Paid Points
You can actually negotiate to have the seller pay for your mortgage points. Depending on your specific loan type and how much money you put down, you can ask for seller concessions. In fact, you can sometimes get up to six percent of the purchase price. For example, on a $500,000 house, that equals $30,000. Because of this, you do not always have to pay points out of your own pocket.
Have more questions about mortgage points or building a solid game plan? Visit spokanehomeguy.com or call 509-990-SOLD (7653) — we’re happy to walk you through it.
FAQ
Buying points requires an upfront investment based on your loan size. Sometimes, this costs anywhere from one to three percent, or more, of your total loan amount. Because of this, it is a significant upfront fee to consider when buying a home.
Usually, an upfront investment in points gets you a quarter of a percent or a half percent in interest savings. However, this varies slightly depending on the market. Ultimately, your lender will calculate exactly how much your monthly payment drops.
Yes, you can absolutely negotiate to have the seller pay for them. Depending on your loan type, sellers can contribute up to six percent of the purchase price. So, you do not necessarily have to use your own cash to lower your rate.
