Sometimes you will call a lender, and you will ask them about rates.
They may tell you that you can get a certain rate without "paying points." But, you can get a lower rate if you pay a certain amount of points. What do they mean by this?
When a lender refers to paying points, they mean that you can pay a percentage point of the loan amount to buy the rate down.
Is this beneficial?
Well, that is in the eyes of the beholder....I'll give you some examples.
Let's say that a lender says, "I can give you a rate of 4.75% if you pay 2 points, or I can give you a rate of 5.125% if you do not pay points." Your mortgage is worth $100,000. If you had a 30 year fixed rate, your payment would be $521.65 with a 4.75% rate. Your payment would be $544.49 with the 5.125% rate. Two points are worth $2,000 of your loan. It would take you over 7 years to recover that $2000.
So, you need to ask yourself....is having liquid money worth more to me right now? Or is having a lower payment by $22.84 more worth it to me?
There is no right or wrong answer. Everything depends on the person that is buying the home and getting a mortgage. Assess your goals, and you can decide what is the best way to go.
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