Danger!

If you are fairly new to buying and selling real estate, meaning you
entered the real estate market this decade, you are probably unfamiliar
with the term Points.  Points are unique to our country, no where
else in the world is the buyer offered the opportunity to buy down
their interest rate.  But in the USA, our banking institutions are
always trying to figure out ways to make more money on us, and points
is one way to do it.  Oops, do I sound cynical?  Perhaps I
am.

What are Points?
They are fees a borrower pays to the lender to get a lower interest rate.  The good news is they are tax deductible.  The bad news is they are up front fees you must pay in cash, should you want to “buy down your loan”.

Is this something you should do?
It depends on many things, but is whether you plan to be living in your new home for a while. Now I know
it is something hard to know that when you buy a house, but try to  project what your life will be like in the next 5 years and if you think you might still be living in the house then it might be worth
considering.

Why are there so many combinations of points?
There is a menu of options for prime buyers, those with cash in the bank.  If you only have enough cash
to bring to the closing and then the coffers are bare, points aren’t an option for you.  If you have money in the bank, and it won’t all go to the escrow office in order to close that escrow, then ask about the menu of points available.  Once you see what the banks offer you can decide if it’s worth taking the cash out before the purchase or using that cash for other things.

The payment of points is like an investment in your future.
If you will be living in your new home for many years to come you will save on the interest rate of your loan
and because of this savings you should consider this an investment in your future.  It only works if you stay put and keep that loan for a lengthy period of time.  If you decide to refinance in the future, the savings you thought you were getting will evaporate.

We are in an interesting time for mortgage ending.  Take your time and evaluate everything your lender provides you.  If you want to see what your rate of return might be check this calculator out and then decide what is best for you.  The pressure of multiple offers is generally over today so you can stop, think and evaluate.