Should I Pay Points to Lower My Mortgage Interest Rate?
By Jim MichealsInsider tips on lowering the interest rate on a new mortgage.
There are two kinds of points where a mortgage is concerned. There are origination points and discount points. The discount points are the ones that will lower the interest rate on the mortgage loan.
What Are Discount Points?
Discount points are a dollar amount equal to one percent of the principal amount of the mortgage loan. Some lenders may stipulate how many points a client may be able to purchase. If you purchase two points on a two hundred thousand dollar loan, then you would pay an additional four thousand dollars to the lender. These points are prepaid interest.
How Are the Discount Points Paid?
Discount points are paid at the closing of the mortgage loan. Either the buyer or the seller can pay these points in order to reduce the amount of the interest rate. A buyer may not be allowed to purchase points on an FHA or VA mortgage. In this case having the seller purchase the discount points will help to reduce the interest rate.
Are Discount Points Tax Deductible?
If you itemize deductions on your Federal Income Taxes you will be able to include the points you purchased as a mortgage interest deduction. If the seller paid the discount points then the seller and not the buyer will be able to deduct them from their income taxes.
Benefits of Obtaining Discount Points
Discount points are used to lock in a lower interest rate for the life of the loan. Even though the seller may pay these points and deduct them on their taxes it is still of benefit to the buyer in that they have a lower interest rate. A seller may be willing to do this in order to expedite the loan process.
Related posts:
- What Are Discount Points On A Mortgage Loan?
- Should I Pay Discount Points In Exchange For A Lower Interest Rate?
- How Do I Buy Interest Rates Down For A Mortgage?
- How Important Are Points To A Mortgage Rate?
- Is It Worth It To Pay Points For A Lower Interest Rate?