Paying points when refinancing your mortgage can buy you a lower mortgage rate and save you thousands of dollars in the right circumstances. Pay points unnecessarily when refinancing your mortgage and you are throwing your money away. Here are several tips to help you decide if paying points is beneficial for you when refinancing your mortgage.
A “discount point” is 1% of your mortgage amount, paid at closing in the form of “pre-paid interest.” Paying this fee typically lowers your mortgage interest rate by .25% for each point you pay. Should you pay discount points when refinancing your mortgage? The answer to this question depends on how long you plan on keeping the loan and what mortgage rate your credit allows you to qualify.
In order to determine if paying points is beneficial, you should evaluate the cost and savings of paying this fee. To determine your cost/savings basis simply divided the amount you will pay in discount points by the amount your mortgage payment will be lower each month. This will tell you the number of months it will take to realize a savings and recoup your expense. If you will recover the costs of paying discount points in 5-7 years it is probably worth your while depending on your financial goals for the loan.
If you decide to pay points it is important that you keep your mortgage long enough to benefit from the lower payment. The average American homeowner refinances their mortgage every five to seven years. If you refinance before recouping your expenses or realizing any savings, you will have wasted your money. Only consider paying discount points if you plan on sticking with your mortgage for the long term.
You can learn more about refinancing your mortgage without paying too much with a free mortgage refinancing tutorial.
You can learn more about refinancing your mortgage without paying too much with a free mortgage refinancing tutorial.
Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Mortgage Refinancing - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.
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Mortgage Discount Points
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