Most people fear or dread the purchase
of a new home simply because they do not understand
points. Many times, potential home buyers will nervously
ask how many points they are paying for without really
knowing what a point is or how they work on home loans.
The truth is, a point can be your friend.
A point is a one time fee, charged up front by your
lender. A point is 1 percent of the total loan amount
and it reduces the interest rate you are charged throughout
the life of the home loan. That is not bad! Who wouldn’t
like to pay less interest – especially on a home
loan?
The benefit is pretty simple. When your interest rate
is lower, your monthly payments are lower, too. If you
plan to keep your house four years or longer, purchasing
points can be a good decision. Many lenders advise their
clients that it takes four years to regain the initial
cost of the points in making the lower monthly payments.
After about four years, most lenders agree, you will
regain the interest you paid up front in exchange for
the lower monthly house payment.
Another benefit to buying points is that they may provide
a tax deduction as a home mortgage expense if you itemize
your deductions. For further details about house related
tax deductions, check with a tax consultant or visit
the Internal Revenue Service’s website at www.irs.gov.
If you are wondering how buying points will affect
home loans or your monthly house payment, use our mortgage
calculator to help you weigh the pros and cons.
You can compare various point related scenarios, like
the costs if you don’t choose to buy points or
the results of moving or refinancing within four years
of buying your house if you do buy points.
For more information about how points work on home
loans, fill out our mortgage loan application. We will
put your fears to rest and can give you sound advice
on how to make the point system work in your favor when
you buy your next home. The important thing to remember
is that the only stupid question is one that is not
asked. You should have a full understanding of financial
decisions as large as the purchase of a home and any
good lender will be happy to explain the process. |
