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What are Mortgage Discount Points & should I pay them?

What are discount points and should I pay them?

First of all what is a point?  One point is equal to 1% of the loan amount.  This fee is charged in exchange for a discount on your interest rate.  Essentially, you are paying a portion of the interest up front in order to pay a lower rate for the term of the loan.  Discount points can be a great tool to help reduce your rate depending on your situation.  There are options to pay half a discount point or less, and there are options to pay more than 1% in discount points.  You can even pay 3 or 4 discount points if you really wanted to.  Every person’s situation is different so we can never make a general statement that paying points is a good or bad thing.  We encourage you to get all the options before you make a decision to lock in your rate.  Here is an example where one client benefited by paying discount points.

Purchase price was $300,000

The client was going to put a $25,000 down payment

The interest rate offered  was  5.5% with no discount points

Paying 4 discount points, or $12,000, allowed them to buy the rate down to 3.75%.  The payment was now $300 lower per month, saving them $108,000 over the term of their loan.  For someone looking to stay in their home long-term, this can be a great option.

With the incentive buyers earn can be used to buy down the rate, pay closing costs, or just getting cash back in your pocket.   Spending this incentive could mean a half percent lower interest rate and thousands over the life of your loan.  Get with our preferred lenders and they will give you all your options when it comes to selecting your interest rates.

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