According to TransUnion, interest rates on 30-year mortgages could average 5% by the end of 2019. To avoid the impact of this added cost in the long term, CNBC’s Darla Mercado suggests that some prospective buyers could benefit from paying “mortgage points” or “discount points” to reduce their monthly interest rates.
Each “point” is a fee paid upfront to the mortgage lender, equal to 1% of the amount being borrowed. Depending on how many points the borrower chooses to pay, the lender will reduce the mortgage’s long-term interest rate by a set amount.
To determine how long it will take to recoup the additional upfront cost of the points — your break-even point — you’ll need to divide the additional amount you paid by the amount of monthly savings.
In that sense, if you spend $2,000 on a point and save $30 a month due to lower interest, it will take you about 66 months or 5½ years to break even. …Ultimately, whether paying down points makes sense for you will depend on how long you’re staying in the house.
Read More
