Is Paying Points worth it in 2023?
-Understanding the Pros and Cons of Paying Points- Mark Taylor, Senior Licensed Loan Officer, NMLS: 1504731
According to Zillow, approximately 45% of borrowers who obtained conventional primary home mortgages in 2022 opted to pay for mortgage discount points. This was a year of high rates eclipsing 7% due to inflation. For the previous three years, less than 30% of originated mortgages included points. When it comes to buying a home, many homebuyers opt to pay points upfront to lower their mortgage interest rate. However, paying points may not always be the best decision, especially when interest rates are high and expected to decrease in the next few years.
To understand why paying points may not be wise when interest rates are high, it's essential to know what points are. Points, also known as discount points, are fees paid upfront to lower the interest rate on a mortgage. Each point is typically equal to 1% of the loan amount.
When interest rates are high, paying points may seem like a good idea to reduce monthly mortgage payments. However, it may take years for the savings on monthly payments to outweigh the upfront cost of paying points. In most cases, it takes 5-8 years to break even when paying points, and many people may not hold their mortgage that long.
Additionally, most economists predict that interest rates will decrease in the near future, providing the opportunity for newer homeowners to lower their interest rate. If that's the case, paying points now will not provide savings.
It's important to note that there are scenarios where paying points might make sense. For example, if there are low-dollar points available and the break-even point is within the first or second year. In such cases, it's worth considering paying points to save on interest costs.
However, paying points will always be a calculated gamble. As such, it's crucial to consider the long-term financial impact of such a decision.
Mark Taylor | NMLS # 1504731 | AL: 67777, AZ: 0939604, CA: CA-DBO1504731, CO: 100520451, FL: LO35912, GA: 51692, ID: MLO-21237, IL: 031.0043598, KS: LO.0039017, KY: MC394725, LA:, MO: 18752-MLO, MT: 1504731, NE:, NV: 59226, NJ:, NM:, NC: I-170118, OR:, PA: 66651, RI:, SC: MLO-1504731, TN: 125173, TX:, VA: MLO-29826VA, WA: MLO-1504731, WV: LO-36484, WI: 1504731, WY: 6646
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