When does paying points to get a mortgage make sense? 3 Considerations
Since the vast majority of those who purchase a home, or any other form of real estate, use some type of mortgage vehicle, it can be useful and/or beneficial to better understand and value, as far as possible, many variables and/ or factors, involved and related! We often talk about factors such as loan term/length, interest rates, variable rate vs. fixed rate, etc., but few people seem to fully understand what it means, period, when it comes to this process and transaction When someone pays points, when acquiring a mortgage, they should realize that one point is equal to one percent of the amount borrowed. For example, paying 1% on a $500,000 mortgage means paying $5,000 upfront. Sometimes this is necessary, due to a less than optimal credit position, and others, it can be used, to pay – the rate, could be paid, monthly. This article will briefly discuss and examine 3 considerations, to find out if paying points is a good strategy and/or makes sense for the borrower.
1. You need an additional interest write-off, this year: Many people have different incomes, from year to year! It might make sense, since the mortgage interest is still tax deductible, for these people, to pay the points, in order to have a larger write-off, in the year, when they are in a higher tax bracket! However, this should be thoroughly discussed with your trusted tax professional, before using this strategy/approach!
2. Have current funds, but need a lower monthly cost: Imagine, if one has a lot of funds, to pay the additional amounts, necessary for the initial payment, but either does not meet the requirements, for a loan, with the highest monthly payment, and/or needs to have a higher monthly payment download to be qualified! In these circumstances, paying points could make sense and be an effective strategy and/or approach!
3. Payment of the mortgage interest rate: When a pre-pays part of the global interest, necessary to obtain a mortgage, by paying points, he will receive a lower interest rate from the credit institution. Again, he should thoroughly discuss, with his financial and tax professionals, whether this approach makes sense for him!
Should you pay points when looking for a mortgage loan? There is no one-size-fits-all answer and/or response, and the answer is: It depends!
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