|
LESSON 9: POINTS
(continued from previous page)
Origination points:
These are charged by the lender to cover the costs of making the
loan. See Tip 1
They are tax-deductible as long as they are
not are paid in lieu of other closing costs, such as appraisal or
attorney fees. IRS Publication 530 outlines the conditions for deductibility.
Which is better, points
or no points?
That depends on a number of factors, such as how much money you
have available to put down at closing and how long you plan on staying
in your house. See Tip 2
For every point you pay, you have to
live in the house longer before doing so pays off. |
A lender might offer you a 30-year fixed
mortgage of $100,000 at 7.5 percent interest with no points.
The monthly mortgage principal and interest payment would be
$699. But if you pay two points at closing (that's $2,000) you
can bring the interest rate down to 7 percent, with a monthly
payment of $665. The savings would be $34 per month, which is
great. But it would take 59 months to earn back the $2,000 spent
upfront via lower payments. |
Should
you pay points on your mortgage?
Tip 1:
Most home buyers try
to avoid origination points, but may be willing to pay discount
points to reduce the interest rate on their loan.
Tip 2:
"Know the TOTAL
fees being charged. The rate may be lower, but it's no bargain
if the fees are so high they offset the interest rate savings."
Ann G. Riley, Gilpin Mortgage, Wilmington, Del.
Tip 3:
No matter what, always
find out what lenders are charging for loans that have points
as well as those that don't.
Tip 4:
Keep in mind that you can
sometimes negotiate with the home seller or builder to have
that person pay points to your lender in order to lower
your mortgage rate.
|
|
