Buying a home in Burlington, Massachusetts can be exciting. Whether you are buying your first home or want to get into real estate investing, it is important for you to know how mortgage points function. When you are closing on a home, you will have the opportunity to pay for mortgage points. Burlington home buyers should know that they may be able to decrease their monthly mortgage payments by paying for points. This pre-paid interest has a significant impact on the monthly mortgage payments that you make for the rest of your life.
Reduction of Loan Interest Rates
Before you actually purchase a home in Burlington, you may want to try to save up as much money as possible to pay for numerous points. The more points you purchase, the lower your mortgage interest rate will be. Experts estimate that the purchase of one point typically reduces a mortgage by 0.125 percent. A point amounts to one percent of the total loan amount. If you plan on obtaining a mortgage for $100,000, then a point will equal $1,000. It will cost you $1,000 to purchase one point to reduce the interest rate of the mortgage.
Difference Between Mortgage Points and Loan Fees
You should also be aware that mortgage points differ from loan origination fees. Every loan requires the payment of certain fees for processing and administering the loan. These are known as “origination fees” and are paid at closing. The payment of origination fees does not result in a reduction of your loan interest rate. When you are purchasing a home and working with a Burlington lender, you can ask him or her to clarify the differences amongst all of the fees that you owe. He or she can also tell you whether the payment of a certain fee will result in an interest rate reduction for your mortgage.
Before you start shopping for a mortgage, you should also determine the amount that you can afford to pay for points. If you can afford to pay $50,000 for points, then you may be better off purchasing an inexpensive home that costs $150,000, rather than one costing $300,000, due to the fact that your monthly payments will be much lower.
Comparing Mortgage Rates
A lender can help you compare all of your mortgage options. By speaking with a lender, you can learn about the differences amongst mortgages. A lender can also help you choose a mortgage that may work best for your financial situation. Lenders can help you assess the impact of points on your home purchase and if it is right for you.
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