Should I Buy Down My Home Loan Interest Rate?
One thing that you can consider doing when buying a property is to use discount points. These are points that might provide you with a better overall deal on your property.
Discount points work in that you will pay interest upfront to get a lower interest rate on your property.. However, keep in mind during a purchase these fees are added to your down payment.
Lower Interest Rate
The main consideration about discount points is that they might provide you with a lower interest rate on your property. That is the total amount of interest you would pay over the next few years will decline with thousands of dollars at stake in some cases. But to get those discount points, you will have to pay off some of that interest.
You would have to pay all those thousands of dollars of interest right now if you wanted to get discount points. The best way to describe this is that you are essentially paying off the interest that you would have spent on the property had you paid the home loan off sooner. Think of it as a case where you are paying off a good portion of the home loan’s cost right now. Lenders like this as it shows that you are capable of paying off your property loan.
What Would You Do About Payments?
With discount points, it becomes easier for you to afford the monthly loan costs. Although you are spending more at the start, the monthly payments are at least cheaper thanks to the lower interest rate.
But even with that, there is a potential that you might be able to pay off the home loan earlier. The early payoff could be worthwhile if you have enough money to utilize, but at the same time, you would not have benefitted all that much from the discount point at this juncture. You would be better off using discount points if you do not have any plans to pay off your loan early.
What About Negative Points?
One intriguing option entails getting negative points on your purchase. Negative points go onto your loan in that you can get a higher interest rate on your property in exchange for something like all the closing costs associated with your property reduced or even eliminated.
This is an interesting choice for getting your property paid off, but you would have to watch for how the monetary difference between the closing costs and the new interest rate go into consideration. Although closing costs might go for around 5 percent of your home’s value in many instances, the potential is there for the added interest charges to be worth more than that total.
Be aware of what you are doing when getting discount points on your property regardless of whether they are positive or negative. Always compare your options and take a look at what you might spend on space and how you will pay for the entire cost of the property.