Homebuyers will often choose to pay points in exchange for a lower interest rate on their mortgage. A point is equal to 1 percent of the loan amount. For example, one point on a $100,000 loan would be $1,000. Points are typically paid out-of-pocket.
The decision to pay points is based on how long you intend to stay in the house and how much you save by reducing the interest rate. Consider the amount your monthly payment is reduced and how many months it will take for the savings to exceed the amount paid in points.
If you plan to sell and move in the near future, then it may not be in your best interest to pay points; you might be better off with the higher interest rate and no points.
Another thing to consider is that points on a mortgage loan are fully tax deductable during the year you closed on your new home. The rules are different if you are refinancing your home.
Mark Goedert of Goedert Real Estate works with first-time homebuyers to help them understand the process to make wise home buying and financing choices. Goedert Real Estate provides information and resources for new buyers and affordable listings.
Mark Goedert of Goedert Real Estate has been in business for over 50 years, working with real estate professionals, agents, developers, investors, REO brokers and first-time home buyers in Battle Creek, Hillsdale, Lansing, Jackson, Grand Rapids, Adrian, Howell, Sterling Heights, Monroe, Farmington Hills, Ann Arbor, Detroit and neighboring cities and communities.
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