When considering a home purchase, your mortgage planner will take the time to review your goals and financial situation and suggest the best loan program for your needs. One of the things that may be suggested is paying “points” on your mortgage. Simply put, mortgage points are pre-paid interest. In most situations, if you choose to pay points on your mortgage loan, there will be a higher upfront closing cost but a lower interest rate. A “point” is usually equal to 1% of the loan amount and will lower your interest rate by .025%-0.5%.

If you plan on staying in your house and carrying your mortgage for an extended period, paying points may be a good option. The easiest way to determine if you should consider paying points is to look at the amount of interest and the combined closing costs of your mortgage over time. Ask yourself if you can afford to pay upfront for the points now; if you can, it might be worthwhile to consider.

Due to the increased upfront payment, the reduced interest rate will save you money over time. The longer you carry your mortgage, the more likely you are to reach the “break-even” point where your interest saved compensates for the cash you paid outright to buy the points.

If you’re interested in purchasing a home or refinancing your current home in Winston Salem or the surrounding areas, give us a call! We can discuss your financial goals and discuss a loan program that might be right for you.