If you are in the market for a new mortgage, one decision you will be faced with is whether or not you should pay points at closing. There are situations where paying discount points up front can save you money over the life of your mortgage. Here is what you need to know in order to make an informed decision. Points come in two flavors; there are discount points you pay at closing in exchange for something like a lower interest rate, and origination points which are lender fees for processing your mortgage. Most homeowners choose mortgages without discount points. If you elect not to pay discount points at closing your out-of-pocket expenses will be much less; however, you could end up with a higher interest rate than if you had paid points. Origination points are a negotiation point with your lender. If you have excellent credit you will want to negotiate as much of these fees away as possible. If you are coming to the bargaining table with poor credit, you will not have much to negotiate with; however, it never hurts to ask. Paying discount points on your mortgage is a trade-off between the potential savings you stand to gain down the road and the cash you will have to front for these savings. One point is equal to one percent of the loan value. The number of points you are required to pay or agree to pay depends on a number of factors. If you have excellent credit you can use points as a bargaining chip for a lower interest rate. If you have poor credit your lender may require a certain number of points in order to qualify for the loan. To learn more about paying points up front and if this is right for you, register for a free mortgage guidebook. |
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