What are points? Mortgage Information

If you have good credit, you should never have to pay points!!! The only reason to pay points when you have good credit is to buy discount points to get the rate down. You should know or have a general idea of what rates are. So let's say for example rates are 6% at some of the local banks and mortgage brokers. But you know you are going to stay in the house for a long time, you are a saver, and rates are pretty low. You can buy down the rate by paying 1 or 2 discount points. 1 point usually lowers the rate by a 1/4 of a percent and 2 points usually lowers the rate by 1/2 percent.
A point is one percent of the loan amount. So if your loan was $200,000, 1 point is $2,000 to lower it a 1/4 % from 6 to 5 3/4%. 2 points is $4,000 to buy the rate down 1/2 percent to 5 1/2%. The amount points buy down a rate vary from each bank or mortgage broker so be sure to check with them what the cost of the point and how much it will bring down your rate.
The reason you don't want to buy points usually is because it takes anywhere from 4 to 7 years to re coup the money from buying the points. So if you refinance or sell your house during that period you lose that savings. You just threw that money out the window. Most people refi or move during that period.
Let's continue with that example. A $200,000 30 year fixed loan at 6% will have a payment of $1199.10. If you buy that loan rate down a 1/4% you would have a $200,000 30 year fixed rate at 5 3/4% with a payment of $1167.15 that cost you $2000 to do . A savings of $31.95 a month or $11,502 saving over the life of the loan! If you minus the $2,000 cost for the point then it is $9,502 over the life of the loan. Quite substantial. But only if you stay in the loan.
To figure your breakeven point you take the cost of the point ($2,000) and divide by the savings ($31.95). $2,000 divided by $31.95 = 62.59 months. It would take you about 63 months to break even. So you would have to stay in the loan for 5 years 3 months before it is a benefit to you and you actually start saving money. For more mortgage information go to www.russravary.com May today's troubles disappear quickly for you. Russ Ravary