Discount Point Strategies

Discount point strategies

o figure out how many points to get, you need to decide how much you can afford to spend up-front, each month and in total.

Discount points directly affect these costs and allow you to find a balance that fits your budgeting needs.

Total cost

Discount points lower your interest rate. The longer that you hold a mortgage, the longer you will enjoy the savings of the lower interest rate.

As you can see in the table below, if the example mortgage is held for two years, the lowest total cost would be with -2 discount points (or 2 rebate points), but over five years it makes more sense to get 3 discount points.

Example: $100,000 30 year fixed rate mortgage

Monthly cost

Unless you can afford the up-front cost and monthly payments, talking about the total cost of a mortgage doesn't always help. As you can see in the table below, the more you pay at closing, the lower your monthly payment.

You need to find a balance between the up-front cost and monthly payment amount that you can live with.

Example: $100,000 30 year fixed rate mortgage

Another option

Rather than use rebates to lower your closing costs, you can simply borrow more money and use the extra money to pay the closing costs.

This can be more attractive than getting rebate points if you have a large down payment (over 20%) and you plan to be in the home for more than a few years since it doesn't raise your interest rate.