Paying Points

Fairway “points” you in the right direction for refinance

There are two common myths surrounding the idea of paying points on a mortgage.

  1. You should pay down points when you refinance your mortgage to receive the lowest possible interest rate.
  2. You should never pay points when you close your refinance.

For those not familiar with the concept of paying points on a loan, a “point” is generally equal to one percent of your loan amount. For example, two points on a $100,000 loan results in a cost of $2,000. Points allow you to “buy down” the interest rate. This means that the more points you pay, the lower your interest rate will be, which may save you money over the life of the mortgage. Plus, points are tax deductible.

Myth 1

For the sake of example, we will assume that your mortgage interest rate is 5% and you would like to refinance at a rate of 3.5%. You are likely going to incur closing costs (lender fees, credit report, appraisal, etc.).

If you are at 0 points and your rate is 3.5%, you could pay 1 discount point to receive to a lower fee. This is possible because the lender looks at this transaction like buying in bulk. Sometimes paying down works for you and sometimes not. Your loan officer will be able to advise you on whether or not this is the best decision for you by analyzing the total closing costs of the loan and dividing it by the monthly savings.

Good loan officers should able to tell you the total cost. We typically base our calculations on your financial goals for the next five years. Fairway wants to save you money and our mortgage planners will go the extra mile to make that happen.

Myth 2

Some people believe that they should never pay closing costs when they refinance their mortgage, and we certainly have great loan programs and incentives to make that possible for you. When we use premium pricing, that rate makes it possible for us to roll the closing costs into the refinance by adding a bit to the interest rate. That “rebate” from the bank will help pay the closing costs.

No closing cost refinances are a good choice for people who may want to move to a new home in the next few years, but is a huge bonus for homeowners of all kinds. However, if you are going to have the loan for a while, paying the closing costs may actually benefit over time. A skilled mortgage planner like those at Fairway Independent Mortgage will help guide you through the choices and educate you about the best options for you. Call us today!