Bangor, Buyers, Mortgages, South Haven

South Haven and Bangor Homes - Should you buy mortgage points?

This is part 2 in a series about understanding your mortgage. Read more: Understanding Mortgage Points

You can also “buy” points to improve the interest rate you get on your mortgage.  If you have the available cash on hand, and have long-term plans to stay in the house, you may think about “buying down” points to qualify for a better interest rate.  Though you’ll have to bring more money to closing, you’ll enjoy lower monthly payments over the life of your mortgage.

Generally, for each point prepaid, the interest rate on your mortgage will drop about a quarter (.25) of a percent (unfortunately it’s not a one-percent-for-one-percent deal!)  Additionally, lenders usually set the number of points that you can prepay (so you can’t just pay a little more for a 0% nterest rate).

When to Buy Down Points

When should you prepay points?  It depends.  If you have the extra cash on hand, there might be a better way to invest it.  Sit down and do the math before you decide (I used to be a teacher, so I’m happy to help with this).  Divide the total cost of the points by the savings in each monthly payment.  That answer is the number of payments it takes to break even.  If the number of months to payback is longer than you plan to have the mortgage, another loan option should be considered.

If you don’t have cash available, don’t think about borrowing it.  Doing so will increase your loan amount and total costs because you’ll be paying interest on that for the life of the loan as well.

If you’re looking to buy real estate in South Haven or Bangor, you really need to understand all of the costs of your mortgage.  I’d be happy to meet with you to explain!