How to Pay Points With Your Lower Mortgage Rates
- 1). Find the lowest interest rate. Compare interest rates through online calculators, such as Bankrate.com or Yahoo Real Estate. Write down the lenders who offer the lowest interest rates to research further.
- 2). Inquire if the lender allows borrowers to purchase points. Contact the lenders offering the most attractive rates and ask about purchasing points on the mortgage. Most lenders allow you to purchase up to two percentage points. For example, if the published rate is 6 percent and you purchase two points, the new interest rate is 4 percent, which is good for the life of the mortgage.
- 3). Calculate how many points you can afford to purchase. Purchasing points is expensive. But, over time, you will recover the upfront costs. Typically, each point will cost you 1 percent of the mortgage amount. For example, if the mortgage amount is $200,000 and you purchase one point, the cost is $2,000.
- 4). Use a points calculator. Another option for calculating the cost of purchasing points is using an online calculator (see Resources). When using the calculator, you will need to enter the loan amount, interest rate before purchasing the points, number of points you plan on purchasing and the loan term. Entering these items into the calculator will give you the estimated cost of purchasing points.
- 5). Ask your tax advisor about the tax benefits of purchasing points. You may be able to write off the fees paid for points; however, this deduction is usually taken over several years. Consult your advisor for more details.
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