The goal to avoid paying points on a mortgage is one that many a homeowner has set, and will continue to set. But those who believe in this often end up eating their words.
Points, Interest Rates, And How You Can Cut Down On Mortgage Payments
What are points when related to the mortgage and real estate business? Lenders sometimes ask for an upfront cost, or “points”, in order for the person they’re dealing with to qualify for the loan. The amount of points is determined by several factors – your annual wages, down payment amount and credit score. In certain cases, it might be more important to demand more, not less points.
The correlation of points and interest is a fascinating thing to consider in mortgage. Paying a lot of points would normally mean a lower interest rate. If your credit isn’t that good, that wouldn’t always be the case, but this is a general rule in most situations. You can play around with this relationship to your benefit.
It doesn’t matter whether you pay a lot of points on a loan – the cost will not even come close to the amount of interest paid over the loan’s entire lifespan. But you can work with points in other cases, such as if you are in a house where you want to live in for quite a while. You would need to reduce your interest rate. And you can do so by effectively using your points.
If you have a lot of liquid cash when you buy the property, you can buy a certain amount of points and pay it to the lender to reduce your interest rate. Try to balance the effect on your interest rate with the amount of points you need. You will then need the documents in written form from your lender, and a mortgage calculator to “road test” the different rate reduction options. See if your monthly payment due can be cut down as well. The last thing to do before committing to a decision is to compare the points needed with the numbers you have gleaned.
Points aren’t as bad as they seem, despite not being too popular with the general homeowning public. If you play around with your points properly, think of all the big money you can save over the duration of your loan.
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