Should You Pay Points When Getting a Mortgage?
Category : Laguna Beach Real Estate
From my Rick Cirelli, President RTC Mortgage
With interest rates at or near record lows and so many people buying or refinancing, the question always arises: “Is it worth it to pay points in return for a lower interest rate or to accept a lender credit to apply toward closing costs”?
The answer isn’t the same for each borrower and your mortgage professional should present the options to each borrower to demonstrate the difference and guide them to the best decision.
Here’s what you should know:
- Paying points enables a borrower to “buy down” the interest rate on a mortgage in exchange for an upfront fee. More (put in link to rest of article and mortgage rates and then put in loan workshop info here)
- A point equals 1 percent of the loan amount, so paying one point on a $400,000 refinancing costs an extra $4,000 at closing. Paying a point usually reduces the interest rate by 0.25% over its term, so for instance, instead of 4 percent, the rate is 3.75 percent.
- The average points paid in the last 3 years according to a Freddie Mac survey, was 0.7
- To decide if paying points is worthwhile, borrowers should consider two key decisions: How long they plan to live in the home, and how much they can afford in closing costs.
- In most cases, if the borrower plans to live in the home for at least five years, paying points will help the homeowner to reap savings in the long run.
- Lenders also offer a rebate or credit in exchange for accepting a slightly higher interest rate. The lender agrees to give the borrower a credit, which is used to pay for closing costs. As with points, a credit of 1 point will typically result in an interest rate .25% higher.
Loan Workshop in Laguna
The real estate market is heating up and more and more people are interested in buying a home but are concerned about getting a loan.
Join us on Meet Up: http://www.meetup.com/Laguna-Friends-of-Real-Estate
This loan workshop will have three (3) different lenders who between them offer a full spectrum of traditional and ‘creative’ loans up to $10m.
Presentations will be made by traditional lender (RTC Mortgage), a nontraditional private equity lender (Collateral Group) and an institutional lender (Morgan Stanley).
The workshop starts at 6:30 pm on Thursday, March 22nd at the DeBilzan Gallery, 224 Forest Ave., Laguna Beach.
There is no charge for this event.
Mortgage Rates This Week:
Mortgages Rates moved higher this week at their fastest pace in months.
There are several layers of causality. A “perfect storm” of events drove rates higher: Greece’s bailout; a slightly more upbeat outlook announced by the Fed; slightly stronger Retail Sales, and the general trading dynamics that left bond markets “susceptible” to the weakness.
If you weren’t already locked and have been waiting to do so, rates are STILL close enough to historic lows that floating doesn’t make much sense. And, so far this morning rates have stabilized and even improved a little.
Watch the Daily Rate Lock Advisory on my website for the events that influence the day-to-day movement of mortgage rates and Mortgage-Backed Securities pricing:
Mortgage Intrest Rates
Rates as of Thursday, 15th March, 2012: