How Do I Buy Interest Rates Down For A Mortgage?
By Ann WhiteTips on buying down interest rates on a home mortgage.
Increasing your down payment when taking out a new mortgage will decrease the amount of your mortgage principal but it has no effect on lowering the interest rate. However, the interest rate can be lowered by purchasing discount points. One discount point is equal to one percent of the home mortgage principal.
The Cost of Discount Points
Discount points are purchased at a cost of one percent of the mortgage amount per point. The dollar amount of the points purchased is considered home mortgage interest and can be included in your itemized deductions on your income taxes.
The Number of Discount Points Allowed
Some lenders may only allow a particular number of points to be purchased when the mortgage contract is written up. The mortgage interest is actually the lenders profit and payment for processing and guaranteeing the loan. Decreasing the amount of interest would drastically decrease the future income of the lender.
How Do You Pay Points
The dollar amount for the points you want to purchase is paid at the closing of the mortgage. The title company handling the closing will indicate to each party what is expected of them, as the mortgage contract must be completed before the closing can be finalized. The seller may also offer to pay discount points if they want to help in getting the interest rate lowered.
Not All Lenders Can Allow Discount Points
Government guaranteed loans such as an FHA loan or a VA loan do not allow the purchase of points. The main reason for this is that FHA and VA loans are usually for lower income or middle income families and they are not expected to have any extra cash other than the down payment and closing costs.
Related posts:
- Should I Pay Points to Lower My Mortgage Interest Rate?
- What Are Discount Points On A Mortgage Loan?
- Should I Pay Discount Points On My Mortgage?
- What Are Points On A Mortgage Rate And How Do They Affect My Loan?
- What Are Par Mortgage Rates?
