it

Mortgage Points Explained: How and When to Buy Down Your Mortgage Rate

hi I'm Jennifer beastin so if you're

buying a home and getting a mortgage or

you're thinking of refinancing a lot of

times you'll hear lenders use the word

point and this is usually a word that

you hear when you're trying to consider

should I buy my rate down so what I'm

going to do in this video is I'm going

to explain what points are and a simple

calculation you can do to see if it

makes sense to buy your rate down so the

first thing is is a point is one percent

of the loan amount so if your loan

amount is $200,000 one point would cost

you $2,000 okay now to be perfectly

clear I'm talking about discount points

right now there are origination points

that lenders used to charge but I don't

know that many originators are still

charging points because there's so many

that don't like why would you anyways so

discount points so $200,000 loan one

point is two thousand dollars okay so

let's do an example you're going to be

getting a two hundred thousand dollar

mortgage you can get four and a half

percent interest with no points or four

point three seven five with half a point

okay so the first thing is what's half a

point

well one percent one point is two

thousand dollars so half a point is one

thousand dollars so the lenders offering

you a slightly lower rate for a thousand

dollars this isn't a fee that you pay

multiple times or every year it's a

one-time fee that's very important okay

so the way you figure this out is you're

gonna get the principal and interest

payment for each rate so I took some

notes at four and a half that would be

ten thirteen thirty seven and then at

four and quarter it would be nine eighty

three eighty eight okay so the payment

difference between those two interest

rates is thirty dollars a month okay so

what you do next is you're going to take

the amount that it would cost to get

that lower rate so a thousand dollars

and then you're going to divide that by

the payment amount divided by thirty and

then you're going to divide that by

twelve because that represents one year

okay so divided by twelve so it would

take two point seven eight

for buying this point to make sense now

if you plan to have this house for 10

plus year it makes sense to get that

point if you're thinking you're only

going to live there for a year and move

it probably doesn't make sense

now it's important to do this equation

because sometimes people get

psychologically really tied to one rate

and they're like oh I don't care how

many points I just want this rate and

sometimes it needs zero point zero cents

so for instance if you're gonna pay

$5,000 in points okay and let's say the

payment difference is eight dollars in

the payment because seriously it can be

that little depending on the loan amount

and that's over 12 months 52 years it

would take 52 years to pay off that cost

so if it's gonna take 52 years your loan

is only 30 years like buying not paying

that amount of money to save eight

dollars is crazy

so what I'm gonna do is I'm gonna have a

link to a blog that you can go to that

will have this equation that you can do

but it's super easy now if a lender is

telling you oh well a point isn't 1% of

the loan amount they would be crazy and

wrong so one point is 1% lenders are not

always going to quote in full points it

could be point two it could be 0.375 it

could be two points you know there's a

whole myriad of different things it

could be

now one last important thing for you to

note points change every day not the

cost of them one point is always 1% of

the loan amount but what can change is

the rate that you get for what you're

buying in points so a lot of people

assume if I buy one point the rate goes

down one percent right no totally no

it's depending on the market what the

margins are what the markets doing okay

so if on for if for instance today I was

quoting you four and a half with no

points or four point three seventy-five

with half a point and you call me

tomorrow there's a very good chance that

I would be offering you the same exact

rates and

in structure because just as rates

change everyday so do the points

associated with them so if you get a

quote on Monday it's not guaranteed on

Tuesday you need to remember that with

points with rates it's a very important

thing to know so I hope this has been

helpful if you have any questions let me

know I'm always happy to get calls and

questions and I will have a link that

will give you the math so that you can

do this yourself so you're not relying

on a lender to tell you if it's a good

idea thanks for watching