Question:

How to calculate mortgage points and should I buy points?

Answer:

You will have to calculate mortgage points to see how your monthly payment will be affected and whether buying mortgage points is worth it.

Buying discount points shaves off the interest rate and eventually reduces the monthly payment. However, buying points may not always be the best idea.

Calculating mortgage points is easy to do - 1 point equals 1% of the loan paid upfront. Discount mortgage points are often fully deductible but you have to contact a tax professional to determine how this applies in your case.

If you are getting $100,000 loan for 30 years, it is possible to pay 0.65 to 1.8 points for rate reduction between 0.125% and 0.25%. Lenders offer different interest/point combinations, so make sure you will shop for a cheaper one before you agree to buy points. Calculate how your mortgage payment will be affected with and without mortgage points and determine the break even.

How do I decide to buy mortgage points or not?

Depending on how much your mortgage points are tax deductible in the year you paid for them, it may be a good idea to buy the rate down. If not, it depends on the break even period and how many months you plan on staying at this particular house. Use a mortgage calculator to calculate the break even period, if you can't handle this on your own.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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