Does It Make Sense to Pay Points on a Mortgage
Question: I always see these low interest rate mortgages and wonder if there is a “catch.” When I call to inquire, the mortgage broker always seems to mention “points.” What are points on a mortgage? Does it make sense for me to pay points on a mortgage?
Attorney Philip Hundl: It depends on how long you intend to stay in the house. A “point” is a term used in the mortgage lending industry that refers to 1 percent of the mortgage loan. For example, on a $150,000 loan, one point would be $1,500.
Also, be careful with other loan fees that may not be very openly disclosed. There are “origination” and “discount” points. Origination points are charged for originating or initiating your mortgage (to cover administrative costs). Discount points may be offered to “buy-down” or lower your interest rate, and therefore, your loan payments. Discount points are optional. Lowering your interest rate by buying down the rate will result in paying less interest over time on the principal.
The longer you plan to stay in your house, the more worthwhile it can be to pay points. If you pay a few points and then sell your home after two years, you’ll have enjoyed lower monthly payments due to the lower interest rate, but the savings probably won’t have made up for the points you paid. For example, if you pay $8,000 in points to save $100 per month, it will take you 80 months to break even.
So when comparing mortgage interest rates, be sure to compare apples to apples and take into account the origination fees and points and not just the lowest interest rate.
Attorney Philip Hundl and the other attorneys at Wadler, Perches, Hundl & Kerlick can help you navigate through the complexities of a home purchase or sale and the closing process. We’re experienced in real estate transactions of all types from complex real estate and agricultural leases to a relatively simple purchase of a new home. Call us at 800-929-1725 for an appointment with one of our attorneys or send us an email through our contact form.
Wadler, Perches, Hundl & Kerlick has offices in Fort Bend County and Wharton County to serve your real estate needs. We’d located in Richmond and Fulshear in Fort Bend County and in Wharton and El Campo in Wharton County. Call us at 800-929-1725 for an appointment at any of these offices.