Tim Bradford - AMMCorp.net

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Paying Points on your Mortgage - Current Market Conditions say it might be wise

If you see a Seller or Realtor offering to save you .50% off your interest rate if you buy a home, here is why you are seeing this happening.  An offer of a .50% Lower Rate might cause you to take a second look at the home and is an excellent marketing move on their part.   Below is why this is a Win-Win for the Seller and Buyer.

Years ago it was quite common to pay 1, 2 or 3 points when you took out a mortgage loan.    Over the recent years it is quite common not to pay any points.   With the current mortgage enviroment before you finalize your mortgage application, you may want to consider paying a point or two in order to lower the rate on your loan. 

What is a point?   Points are quoted as a percentage of the amount borrowed, therefore if you were to pay 1 Point on a $100,000 loan you would increase your closing costs by $1,000.  Up until recently you could only expect to get a .25% reduction in the rate you were paying on your loan for every point that you paid.  In the current mortgage market it is possible at times to get a .50% reduction to your rate with the payment of the same 1 Point. 

The following Chart does some math to show in monitary terms the effects of paying one point using the current pricing and what it was years ago.   The chart show how things have changed.  Information presented was based upon pricing as of 12/4/2008.  Be aware that loan options are subject to change at any time. 

 

Loan $

Rate

Payment

Cost

Savings

Months to

Years to

 

 

 

 

 

Per Month

Break Even

Break Even

Base

$100,000.

5.50%

$567.79

N/A

N/A

N/A

N/A

 

 

 

 

 

 

 

 

New
Standard

$101,000.

5.00%

$542.19

$1,000.

$25.60

39.1

3.3

 

 

 

 

 

 

 

 

Old Standard

$101,000.

5.25%

$557.73

$1,000.

$10.06

99.4

8.3


In this example the loan was available at 5.50% with no points.  On this date, if the buyer choose to pay 1 point, either by decreasing their down payment or having the seller pay the point for them by offering the seller $1,000 more, the buyer could save $25.60 per month and the break even for the payment of that point would be approx 39 Months.   Using the options available a year ago, the buyer would have only saved $10.06 Per month and it would have taken approx 99 months to break even on the payment of the same 1 Point.   Considering the fact that in the past people only had their mortgage for approx 7 years (84 Months), you can see why the payment of points was not encouraged by lenders.  Looking at the current options, you should see where considering the payment of points could either lower your payments and save you money,   It might also llow you to purchase a little bit more expensive home if that would be your desire.  

 

Tim's Informational WebSites

All about Ohio HECM Reverse Mortgages
Rent Vs Own in Ohio     Ohio Home Loans
Ohio First Time Buyer Programs Grants    
Cleveland and Northern Ohio Realtors   
Ohio Buyers and Sellers Resources  
Information - Ohio 203K Loan

 


Tim Bradford
Ohio Mortgage Banker LO.007173.000/ NMLS 250013
Cell: 216.324.8113 Anytime
www.GetAMortgageNow.com or www.Go2Apply.com
www.OhioHomePath.com or www.OhioRuralHomeLoans.com

Serving the Ohio Realtors and Home Buyers and Home Owners
Comment balloon 2 commentsTim Bradford • December 06 2008 09:26PM
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