| Discount points are fees paid to a lender at closing in order to lower your mortgage interest rate. While buying points is sometimes a good decision, many times the purchase costs you more than it saves. You should consider paying discount points if you plan to stay in the mortgage for the life of the loan. If you plan to sell or refinance within 5 years, paying discount points probably is not a good idea for you. Contact your local mortgage professional Brian Piper at 703-891-4509 or brian@bestvirginiahomeloans.com for a free no obligation consultation. It is also advisable to contact a tax professional about the deductibility of prepaid interest (also called discount points). Your mortgage professional can help you evaluate the advantages of paying discount points to reduce your interest rate. An easy calculation to help decide your "break-even" point is listed below.
Total Amount of Discount Points ($) / amount off monthly payment reduction ($) = the number of months required to pay off your prepaid interest.
If you remain in the loan longer than this, you will save money. If you refinance or sell before this point, you will not have recouped your investment.
ex. $2500 in discount / $50 payment reduction = 50 months
If you are in the loan after 50 months you will be saving money interest |
