Source: Yahoo! Finance —
With mortgage rates near 20-year highs, some homebuyers are struggling to afford homes.
The average rate for a 30-year fixed mortgage was 6.95% in November’s first week, dipping from a 7.08% peak a week earlier, according to Freddie Mac (FMCC). That was the highest since May 2002 when the median home price was just $182,400.
Costlier financing combined with skyrocketing home prices have buyers scrambling to find affordable alternatives.
One time-tested strategy is to pay points: Shelling out more upfront in fees to get a lower rate and a smaller mortgage payment.
Sounds like a good plan in theory, but is paying points worth it?
» Expert Tip:Looking to buy soon? Set yourself up for having your offer accepted on a home by getting preapproved for a mortgage prior to your home search.
Paying Points – Costs and Break-Even Timeframes
There are at least two schools of thought on paying points.
The first argument says you should never pay points because you don’t know how long you will hold the mortgage. Points are non-refundable.
The opposing view says you can come out ahead by paying points. You just need to estimate the length of time you’ll have the mortgage.
For the sake of argument, we’ll examine how long you have to hold a mortgage to make points worth it.
However, keep in mind that there’s no standard rate reduction per point paid. It depends on your loan product, the original rate, your credit profile, and even the mortgage market at the time. In fact, today’s market is so unpredictable it may be cost-prohibitive to pay points on many mortgage products.
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