Discount points are fees paid to a lender at closing in order to lower your mortgage interest rate. While buying points is sometimes a good decision, many times the purchase costs you more than it saves.

Along with any discount points you pay you may also pay a higher origination fee because the mortgage broker will no longer be receiving a rebate from the wholesale mortgage lender. discuss the different situations with your mortgage broker and see what one fits your situation and needs the best!

Discount points are not the same as origination fees. An origination fee is charged to complete your mortgage loan. They can be charged as points, but it is a different type of cost.

Buying discount points to lower your mortgage interest rate can be a good idea if you stay in the house longer than your break even point. One discount point costs one percent of the loan amount.

You should consider paying discount points if you plan to stay in the mortgage for the life of the loan. If you plan to sell or refinance within 5 years, paying discount points probably is not a good idea for you. Contact your local mortgage professional Marty Searing at 414-303-1215 or msearing@mayfairmortgage.com for a free no obligation consultation.

It is also advisable to contact a tax professional about the deductibility of prepaid interest (also called discount points).

Your mortgage professional can help you evaluate the advantages of paying discount points to reduce your interest rate. An easy calculation to help decide your "break-even" point is listed below.

Total Amount of Discount Points ($) / amount off monthly payment reduction ($) = the number of months required to pay off your prepaid interest.

If you remain in the loan longer than this, you will save money. If you refinance or sell before this point, you will not have recouped your investment.

ex. $2500 in discount / $50 payment reduction = 50 months

If you are in the loan after 50 months you will be saving money interest

 

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