Points and rebates used in the correct way can help you achieved your homeownership goals. Ultimately when buying a new home, choosing a mortgage heavily relies on the finance cost of the loan. Most of these costs can be rolled into the loan by either increasing the loan amount (refinances) or increasing the interest rate.
Points and rebates come from the following situations which can either lower or raise the interest rate.
- Paying Origination
- Discount Points
- Rebates
What’s a Discount Point?
Discount points also referred to as “buying down the rate,” is a circumstance that allows you to pay points to help lower the rate.
What’s origination?
Paying origination has a very negative connotation in the industry, but in most cases, it is one of the best things you can do to lower your loan when you are looking at long term savings.
Example:
A loan for $300,000 at 4%, and if you pay 1 point, the rate turns into 3.5%. Let’s say there are plans to refinance or sell within five years.
Monthly payment: $1,432.25 at 4%; $1,347.13 at 3.5%
Monthly Savings: $85.12
Five-year savings: $5,107.20
*Multiply your monthly saving by how long you plan on keeping the house for or plans to refinance if the savings are higher its this may be a good option.*
Have you heard of receiving a Rebate?
On the other hand, Receiving a rebate is different from buying down the rate and origination. A rebate will help pay for closing costs, and they are not a substitute for the down payment. Overall they allow for the fees usually paid by you through loan proceeds be wrapped into the interest rate of the loan.
Please give me a call if you have any questions and we look forward to the opportunity to serve you!
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**Rates and terms subject to change without notice
