Of all of the matters you will have to understand about your new home loan, one of the most confusing may be points. Don’t get origination points (to pay to get the loan) mixed up with discount points (to lower the rate on the loan).
They are called “discount” points, since they reduce the interest rate on the loan. Your interest rate is determined by many factors, the most important of which is your credit rating. But the interest rate is paid over the entire life of the mortgage, and so a higher rate can increase the cost of the loan significantly.
Preferred borrowers, with perfect credit histories, pay a rate known as “par”, the rate the bank expects to make on a mortgage with low risk. Everyone else will get a rate based on the credit rating. If you can lower this rate, which lasts over the life of the mortgage, is it worthwhile to do so by paying points?
In some cases, especially in a strong buyers market, the seller might be convinced to pay these points so that the buyer saves money over the long run on his mortgage, making the home a more attractive purchase.
For example, if you are borrowing $100,000 for your home and you can obtain a mortgage rate of 6% without points, how much could you save if you paid points?
Let’s use an interest rate of 6% on a thirty year mortgage that can be reduced to 5.5% if points are paid; how do we know if this is worthwhile?
Any loan calculator one can find on the net will calculate your payments. Total interest at 6% is $115,838.19; total payments are $215,838.19; mortgage payments will be $599.55.
If you pay $2,000 to lower the rate to 5.5%, you have to compare how much you will save, since your monthly mortgage payment will be reduced, in this case to $567.79.
Your monthly payment would be $31.76 less per month, and the total repayment amount would be $11,434.15 less. This is the reason many people choose to pay points on their mortgages.
If you want to know more, visit: assurance hypotheque and you misht also like assurance vie courtier
Tags: broker, Insurance, investment, lender, mortgage, mortgage broker insurance