Arcadia Chamber of Commerce - The Connection to the Business Community

When Discount Points Make Sense – Info from Prestige Capital

Mortgage rates on 30-year fixed-rate loans are currently floating in the mid-6% range, and many experts are forecasting rates will remain there for the rest of the year. This leads some prospective homebuyers to consider buying discount points upfront to lower their interest rate.

How It Works
Discount points are optional, and they function as prepaid interest payments to the lender. Buying points upfront permanently lowers the interest rate on a mortgage, thus reducing the monthly payment.

Each point costs 1% of the total loan amount. For example, if you have a $300,000 loan, then one point would cost $3,000. Each discount point purchased at closing may lower your interest rate by roughly .25%, depending on the lender and loan program. This can save thousands of dollars in interest payments over the life of the loan.

How Long Will You Be in the Home?
Buying discount points makes sense if you plan on staying in the home for an extended period of time. This gives you time to break even on the upfront cost of the points.

Once you pass the break-even point, less of your monthly payment goes toward interest and more goes toward the principal balance, earning more equity.

My team and I help our clients weigh out all their options to meet their individual mortgage goals! Give me a call if you – or your friends and family – need a dependable mortgage team that’s ready to go the extra mile.

Best regards,