Have interest rates fallen? Or do you expect them to go up? Has your credit score improved enough so that you might be eligible for a lower-rate mortgage?
You pre-pay interest to get a lower interest rate for the life of your loan. And because points are pre-paid interest, you can, in most cases, deduct.
It’s okay. You can admit that you were sucked in by that 0% introductory interest rate. It happens to the best of us. But what happens when the introductory rate.
Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called "buying down the rate," which can lower your monthly mortgage payments. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000).
It’s okay. You can admit that you were sucked in by that 0% introductory interest rate. It happens to the best of us. But what happens when the introductory rate expires, and you’re stuck with rate that skyrockets to 15, 20, or 25%- or (gulp) even higher? Credit card interest rates drain you.
Understanding the difference between APR and interest rate could save you thousands on your mortgage.
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In mortgage terms, buying down your interest rate is also called paying "discount points." Lenders typically offer mortgage programs with different interest rates andat varying costs. borrowers can choose loans with higher rates and lower costs,or they can pay discount points to get a lower rate.
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If you pay 1 point, or $1,000, to get the 3.875% rate, you lower your monthly payments by right at $10 a month. (Our mortgage calculator will determine the monthly payment for any amount or interest rate.) That means it would take 100 monthly payments, or more than eight years, to recoup the up-front cost of that point.
If you buy a house for $200,000 with 10 percent down ($20,000) the mortgage amount will be $180,000. As a result, one percent of $180,000 – one point – is $1,800. A point is paid at closing. The general idea is that if you pay a point at closing, the interest rate will be reduced.