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Buying Points

Mortgage Library: Ask a Mortgage Related Question: Answers: Buying Points

Question:

Please explain how buying points can save me money on the interest of our loan. Also, how many points can I buy. How low of an interest payment can I go? Can I buy 3 points and only pay 3% interest on my new loan???

Thanks,

V. S.

St. Clair Shores
Michigan

Answer:

V., in response to your question from the Mortgage-X website pertaining to paying points and the affect of paying points here is a general answer:

Assuming that you are looking at a conforming loan Vs. a sub-prime loan you will find that the impact from paying one point (i.e. 1% of the loan amount) generally equates to a .25% reduction in the interest rate. Thus paying 3 points will reduce the interest by .75% (.25% * 3).

The breakeven point for paying points Vs. not paying points is determined if you will hold onto the loan for 5 years. If you are planning on selling your home prior to 5 years it makes no sense to pay points. Also, keep in mind that statistics indicate that on average a homeowner will move every 6 years and change their mortgage program every 5 years. If you were looking to minimize your mortgage payment I would encourage you to look at an interest only loan as one of your options. Should you have any questions please call me at 866.552.5912.

Sincerely,

David Zuckerman
Your Mortgage Consultant For Life
Global Mortgage
6004 Woodbine Road
Woodbine, MD 21797
Phone: (410) 552-5912
Toll Free: (866) 552-5912
Fax: (410) 552-5942
E-Mail: david mymortgageauthority.com
Web: www.mymortgageauthority.com


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