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Interest rates explained: Elapsed time 0 minutes 0 seconds [0:00]
Mortgage interest rates and points can be a lot to digest! You should know, just about every lender has a variety of interest rates available to you. Let's learn why and find out how you can use interest rates and points to your advantage. Think of interest as the price you pay for using someone else's money until you pay it back. The rate of the interest you will have to pay, depends a lot on the market.
Ways to lower your interest rates: Elapsed time 0 minutes 28 seconds [0:28]
There are ways you can lower your interest rate and reduce your total payments, including making a larger down payment, choosing a shorter loan term and boosting your credit score. Points are a way for the lender to provide more interest rate options to the borrower to fit your specific situation better. They come in two forms: origination and discount points.
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Origination fees are points paid to the lender at closing and used to cover the costs of processing the loan.
Discount points explained: Elapsed time 0 minutes 56 seconds [00:56]
Discount points are fees that allow you to buy down your interest rate, therefore lowering your monthly payment.
Buying points may give you a tax benefit, but you should contact a tax professional for your specific tax situation.
Although discount points can buy a lower interest rate, it may take some time to see the benefit. One point is worth 1% of your loan amount.
Let's say you're borrowing $100,000 and by paying one point — or $1,000 — you can lower your monthly payment by $50. To figure your breakeven, you divide $1,000 by $50, which means you'd have to hold the mortgage for 20 months to recoup the 1 point you paid for a lower interest rate.
To decide if points are right for you, make sure you have enough cash on hand for other closing costs, move-in expenses and general emergencies. Also consider using any excess cash toward a larger down payment or for other financial goals, instead of paying points.
As always, crunching the numbers is easier with help
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