Before I can answer that question, I need to give you an explanation of what mortgage points are.
What Are Mortgage Points?
The most popular mortgage points are called Discount Points. A Discount Point is a sum that equals one percent of the loan amount. Let me give you an example. If the loan amount is $300,000, one point is $3,000. You, as the loan applicant, can pay up front some of the interest on a mortgage with discount points. Here’s how it works.
Let’s use today’s prevailing interest of 4% for this example. The loan you are about to take will be for a $250,000 mortgage with a 30 year term. In this scenario, your monthly payment, with principle and interest, but not including taxes and insurance, will be $1193.54. If you pre-pay two discount points, which will cost you $5,000, you may be able to reduce your interest rate to 3.5%. This would leave you with a monthly mortgage payment of $1122.61.
The end result from this would produce a monthly savings of $70.13. If you spend $5,000 and save $70.13 per month, then after 72 months, or 6 years, you will be ahead of the game. To take this to the ridiculous, if you keep the mortgage to maturity, 30 years, spending $5000 up front will save you $20,197.44. And you may be able to pay more than 2 points up front, which would save you even more.
Will You Stay?
If you think you will be staying in the home for at least 6 years, this is why you may want to consider paying discount points. But if you don’t think you will still be there in 6 years, don’t do it.
But however you want to proceed, you will need an experienced Realtor to help you get through the process, So give me a at 732-598-7700. Or you can start to search for a new home for yourself by using the search bar below.
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