Academy Mortgage is continuing to answer the top 10 questions new home buyers have about mortgages in its weekly Mortgage Minute series. For this week, Gina Spearman answers the popular question. “Should I pay discount points?”
Choosing to decide whether or not you want to pay discount points depends on several factors. Discount points are an additional fee that you pay at closing that pays the interest on the loan in advance. Paying discount points can get expensive because you are really buying down the interest rate over the life of the loan. In most cases, that means 30 years! So essentially, by paying discount points, you are bringing more money to the closing table in exchange for a lower rate and therefore a lower payment over the life of the loan.
The only way to determine if paying discount points is the best decision for you would be to do a break-even analysis. A loan office can determine what your payment would be at the current market rate with no discount points, and that can be compared to the amount that you would pay on a monthly basis if you did use discount points.
In summary, discount points are going to beneficial to those that plan to be in a home for a longer period of time. We have a number of videos on this site that explain PMI, closing costs and more, click here to view them.