F 
|
|
Get to the Point!
By: Dovid Winiarz
All too often when borrowers are shopping for a lender, they tend to compare only rates with 0 points. While this is the most inexpensive choice at the onset, it may not be the most financially prudent choice over the long term. Paying Mortgage Points can save thousands of dollars in interest over the term of the loan. A lesson in Mortgage points, from the Mortgage Manager's desk is brought to you from Gefen Financial.Below, you will see how to best use your Staten Island New York Mortgage points.........so read on.
Points legally speaking are, considered closing costs. However many lenders give you a choice as to how many points the borrower will be paying. Origination and Discount point(s) will appear on lines 801 & 802 respectively on the Settlement Statement which will be given to you at closing. A good Staten Island New York Mortgage Broker will also explain to the borrower about points when reviewing the Good Faith Estimate at, or around, application time. Each point equals 1% of the loan amount and is paid by the borrower to the mortgage lender at the time of closing.
How do increasing closing costs by paying points save money?
Discount Points lower the interest rate on the loan. This is called a rate "buy down." A lower interest rate means lower monthly payments. By paying the lender at closing to buy down the interest rate, the borrower saves a little more each month. For example, the lender may offer a 30 Year Fixed Rate Loan with 0 points at 7.000%. But if the borrower pays 1 point, they may offer 6.750%. Using a $100,000 loan with a 30-year term for comparison purposes, the monthly Principal & Interest (P&I) payment would be $665.30 if the interest rate were 7.000%. However, if the rate was 6.750%, the monthly payment would be $648.60, which is a monthly savings of $16.70. This means the borrower pays $1,000 (1% of $100,000) to save $16.70 per month. It would take approximately 5 years of saving $16.70 per month to recover the initial $1,000.
How does the borrower know which way is best?
Generally, if they keep the loan six years or more, it may be worthwhile to pay the initial points. After that point, the savings will be more than the points paid upfront. It is also worthwhile to mention that under current tax laws, points are tax deductible in the year that they are paid.
What is very important when determining the best option, is the timeframe that your borrower will keep this particular mortgage. Things to be considered is:
· Is there any possibility that the borrower may want to refinance or payoff the new loan with in the next five or six years?
· Does the borrower expect any financial windfalls or inheritances in the next couple of years that may influence future game plans?
· Future downsizing or upgrading their home.
· How about employment future? Any plans or possibility of relocation?
These are all situations that should be considered when making a decision of whether or not to pay points.
Before making a final decision, the borrower should consult an accountant or tax advisor. As these scenarios are generalizations, they may have certain tax circumstances that may make these examples irrelevant. It is common sense that all circumstances including tax advantages or disadvantages be discussed with an accountant or tax consultant before closing on a mortgage loan.
Dovid Winiarz, president of Gefen Financial Corp.., is available to answer any question you may have and to assist you with the mortgage process. He can be reached at 718-983-9272 ext 11 .
Please Select an Article:
Raise your mortgage credit score!
Paying off mortgage points
Housing Bubble Myth
Shopping for a Mortgage Professional?
Mortgage CheckList
IRS on Principal Home Sale Exclusions
Reverse Mortgages-Estimated Closing Costs
|
|
|