When To Pay Mortgage Discount Points & When Not To
Did you know: how much you pay in mortgage closing costs is usually within your control? It’s an idea that’s new to most people and here’s how it works.
With every mortgage, there are closing costs. Your lender has costs, your title company has costs, there are fees to get paid. And, they’re the same on every loan. A lender can’t charge different fees to different consumers for the same service because that could be discriminatory.
But, you can choose how much of those fees you pay from your own pocket.
Now, you may have heard of points, which are a one-time fee you pay to get access to lower rates. They’re sometimes known as “discount points” because when you pay them, you get a “discount” on your mortgage rate. Pay one discount point, get a point-two-five reduction in your mortgage rate — as an example.
Well, you can do the reverse of points, too.
You can pay fewer loan closing costs in exchange for taking a higher mortgage rate. Your closing costs are still there, but in this reverse points setup — which loan officers call REBATE — your costs get paid by the lender and you pay nothing in upfront cash.
The trade-off here, of course, is that you’re taking a higher mortgage rate — usually by an eighth or quarter percentage point — but you’re also not paying closing costs.
So, pay points or fees with your money, and get a lower rate. Or, don’t pay points or fees, and get a higher rate. There’s no best choice here — it’s whatever works for you. And, if you want some help with the math for your particular situation, drop us a note in the chat.