Let’s talk about discount points. It’s okay to say it and it’s no longer a swear word. In fact, if you’re a buyer in this market, they can be pretty useful.
When interest rates were so low, it was almost like borrowing free money, discount points really weren’t a thing. There was no need to pay extra money to get your rate lower than 2 or 3%. But now that we’re seeing 5, 6, 7, maybe even 8, 9, or 10, discount points can be a very useful tool for your buyer tool box.
Discount points are purchased with the closing of your house, and they’re applied in your closing costs. What they do is, essentially, allow you to buy down your interest rate for the life of your loan. On average, for every $100,000 you’re borrowing for your mortgage, it’s a thousand dollars to buy a point. So if you’re buying a $600,000 house, it’s going to be $6,000 to take it down one point.
What you need to be asking is how long you plan to own this property. If it’s only going to be a short term, you may not find that it’s worth it to buy discount points. But if you plan to live in this house for a while, it’s recommended that you ask your lender to help you calculate the break even point, which is, how long do I need to own this house to make it worth buying those discount points?
Bottom line: As the market shifts, your strategies need to shift with it. One thing we know for certain is rates are going to continue to change. But if you’re in a position to buy right now, there are lots of strategies that you can employ to make sure that you get in the house of your dreams, and you don’t have to wait. Discount points. They’re back in the vocabulary, and no longer a swear word. But you may be asking yourself, “Is it really worth buying discount points?”
I’m Lindsey Johnson, your resource for all things real estate. See you next time.