When navigating the home-buying process, you’ll encounter various terms and options that can impact the cost of your mortgage. One such option is mortgage points, which can help you lower your interest rate and, potentially, save you money over the life of your loan. But what exactly are mortgage points, and should you pay for them? At Fidelis Mortgage Corporation, our knowledgeable loan officers are here to help you make informed decisions about whether purchasing points is right for you.

What Are Mortgage Points?

Mortgage points, also known as discount points, are fees you pay directly to the lender at closing in exchange for a reduced interest rate on your mortgage. One point typically costs 1% of the total loan amount and can lower your interest rate by a certain percentage, often around 0.25%. For example, if you’re taking out a $300,000 loan, one point would cost $3,000.

How Mortgage Points Work

When you buy mortgage points, you’re essentially prepaying some of the interest on your loan to secure a lower rate. This can lead to significant savings over the life of the loan, particularly if you plan to stay in the home for a long time. However, it’s important to weigh the upfront cost against the potential long-term savings to determine if it’s a wise investment for you.

Example Scenario:

• Loan Amount: $300,000
• Interest Rate Without Points: 3.5%
• Interest Rate with 1 Point: 3.25%
• Cost of 1 Point: $3,000

In this scenario, paying $3,000 at closing to reduce your interest rate by 0.25% could save you thousands of dollars in interest over the life of a 30-year loan. However, you’ll need to consider how long it will take to recoup the cost of the points through your lower monthly payments—a concept known as the “break-even point.”

Calculating the Break-Even Point

The break-even point is the time it takes for the savings from your lower interest rate to cover the cost of the points. To calculate this, divide the cost of the points by the amount you’ll save on your monthly mortgage payment.

Example:

• Monthly Savings with Reduced Rate: $40
• Cost of Points: $3,000
• Break-Even Point: $3,000 ÷ $40 = 75 months (or about 6.25 years)

In this example, it would take just over six years for you to recoup the cost of buying points. If you plan to stay in your home longer than that, purchasing points could be a financially beneficial decision.

Should You Pay for Mortgage Points?

Whether or not you should pay for mortgage points depends on several factors, including your financial situation, how long you plan to stay in your home, and your tolerance for upfront costs. Here are some scenarios to consider:

• Long-Term Homeowners: If you plan to stay in your home for many years, buying points can result in substantial long-term savings.
• Short-Term Homeowners: If you anticipate moving or refinancing within a few years, the upfront cost of points may not be worth it, as you may not break even before you sell.
• Upfront Costs: Consider whether you have the cash available to pay for points at closing without straining your finances. If cash flow is tight, it may be better to save your money for other expenses.

How Fidelis Mortgage Corporation Can Help

At Fidelis Mortgage Corporation, we understand that the decision to buy mortgage points can be complex. Our experienced loan officers are here to provide personalized advice based on your unique financial situation and homeownership goals. We’ll help you calculate the break-even point, explore alternative options, and determine whether purchasing points aligns with your long-term plans.

Here’s what we can offer:

• Detailed Analysis: We’ll help you understand the impact of mortgage points on your loan and calculate potential savings.
• Tailored Advice: Our team will work with you to assess whether buying points makes sense given your specific circumstances.
• Transparent Guidance: We’re committed to ensuring you have all the information you need to make an informed decision, without any surprises at closing.

Making smart financial decisions during the home-buying process can lead to significant savings over time. Contact Fidelis Mortgage Corporation today to speak with one of our loan officers and explore whether buying mortgage points is the right choice for you.