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Should I Pay Discount Points On My Mortgage?

By Bob Redtree

A discount point is equal to 1% of the loan amount when paid at closing. Paying a discount point is determined by how long the owner will live in the home.

One discount point is the same as 1% of the loan amount not the purchase price of the home. This amount if paid at closing will decrease the monthly mortgage amount slightly. The best way to determine if a homeowner should pay discount points is to determine how long they plan to stay in the home.

Discount Points

If the homeowner is staying in the home for less than five years it does not make any sense to pay discount points at the beginning of the process because they will not be in the home long enough to see the benefits. Their money could be used better in a savings or retirement fund. If the owner will be staying in the house longer than five years it may prove to be slightly beneficial. The longer they stay in the home the more they will reap the benefits of paying discount points. It may save them about $15 a month at first in their mortgage payments by paying at least a point at closing.

Length of Stay

Many people would have to stay in their homes for 30 years to see a real benefit to paying discount points. Many people don’t stay in homes that long today. It may be beneficial to wait the first five years and then reevaluate the situation to determine whether the mortgage deal can be revamped to see if paying a discount point will be a positive thing to do.

Conclusion

The question of whether someone should pay discount points on any mortgage will depend on how long they plan on staying in the home, less than five years it is not worthwhile. Staying more than ten years may prove beneficial.

Related posts:

1. What Are Discount Points On A Mortgage Loan?
2. Should I Pay Discount Points In Exchange For A Lower Interest Rate?
3. Should I Pay Points to Lower My Mortgage Interest Rate?
4. How Important Are Points To A Mortgage Rate?
5. Are Mortgage Points A Good Investment?