Should I Pay Points? |Buy Down The Interest Rate

 

Rate. Term. Points.

Whenever I sit down to go over the ins and outs of the loan process, I usually get questions about rates, term, and points.

In most loans the rate and fee work like a seesaw. If today’s interest rate was 5% with no points, but you want a lower interest rate. What you can do is buy down the interest rate by paying points. Points are a certain percentage of the loan amount. So the fees go up, but your rate goes down.

If you’re going to be in the home for an extended period, it’s very common to pay some points to get that low rate. Understanding that 5, 10 or even 30 years of a lower payment, because you paid a point upfront, can save you a lot of money.

A lot of times people don’t have enough money for closing costs. I can raise the interest rate .5% and will receive a 1.5% of the loan amount as a credit that goes towards closing costs. So, on a $400,000 loan if I raise the interest rate a .5% I’m going to get about $6,000 to lower your closing cost, and that’s a big deal.

What Affects My Rate?

There are a few things that will affect your rate. Your rate is dependent on how much you put down, what type of program, and the all-important FICO score. So, the lower the FICO score, the higher the rate, the higher the FICO score, the lower the rate. Everything seems to work like a seesaw in this business. And this is not something that is only part of my company it is part of every company in the industry. All loan programs work this way. So, if you ever run into somebody who says, “Well they’re charging you points.” There is a reason we’re charging you points. It’s because we’ve given you a lower rate. But we will discuss this with you. I’m a walking calculator. I’m good at helping you figure out if you should buy down the interest rate. This is Chris the mortgage pro, and I’m going to help you fire your landlord!

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