High Mortgage Interest Rates
A week ago last Friday mortgage interest rates reached 8%, the highest rate in 22 years. The federal government is raising prime interest in an effort to curtain inflation, as you all know.
So how do you buy a house if you are getting a mortgage and do not want to pay the current high interest rate?
Buy Points
Before the interest rates dropped below 5% in about 2005/2006, it was common that people could qualify to buy down the interest rate by paying points. Mortgage points are the fees a borrower pays a mortgage lender in order to trim the interest rate on the loan, thus lowering the overall amount of interest they pay over the mortgage term.
This practice is sometimes called “buying down the rate,” according to Bankrate.
For example, one discount point will cost you 1% of your loan amount and will lower your interest rate by 0.25%. That means if you’re taking out a mortgage with a 6.5% interest rate and you buy one mortgage discount point, your interest rate will drop to 6.25%.
Your lender may have other buy-down options as well.
Should I Buy Points on a Mortgage?
You might want to pay points to get a lower interest rate if you have enough money upfront and want to save over the life of the loan. You might instead consider buying lender credits if you don’t have much money to pay upfront and want to save on monthly costs, says Forbes.
However, if you don’t know how long you’ll be in the home, paying points or taking on a higher interest rate to receive lender credits might not be the best idea.
You should ask your loan officer to show you two different options—with and without points or credits—and calculate the total costs over a few possible scenarios to see which is right for you.
Also ask your lender about porting your current mortgage. There are likely more options than mentioned here that may benefit you. Your mortgage lender is the one to speak with about this topic.
Contact Us
Tucker Benner Realty encourages you to talk to your lender about whether this is a good fit for you. And when you are ready to buy your home, we can help you there, too!
Marilyn Tucker
