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Home Mortgage Refinance Loan - Mortgage Refinancing Discount Points: Should You Pay Points For a Lower Mortgage Rate? Points including origination fees are important charges to consider at the time mortgage refinancing. Paying 1 discount point upfront usually lowers your mortgage rate by ¼ percent. Is the trade-off worth forking over the cash for discount points at closing? Here are a several tips to help you understand mortgage points including decide if paying is worthwhile at the time mortgage refinancing. One point, called in the case a “discount point” is 1 percent of your loan amount in the form of “pre-paid interest.” Whether or not paying the fee is worthwhile depends how long you plan on keeping the mortgage. If you sell your home or refinance the loan before recouping your expenses, you’ve wasted your dollars by paying discount points. Suppose you were refinancing a $225,000 mortgage with a 5.25%, fixed interest rate mortgage loan for 30 years, but have to pay 1 point to qualify. Your monthly payment after paying the $2,250 fee will be $35 lower because you paid the fee. With the $35 per month savings it could take you nearly 65 months, just over 5 years to recoup the expense. The average homeowner in the United States refinances their mortgage every 5-7 years; how much more could you save by refinancing 5 years from now with higher income including better credit? For many homeowners paying discount points simply isn’t worthwhile at the time running the numbers. If you are rate shopping for a new mortgage, ask your loan representative for rate combinations with including without discount points. If you are not seeing a 1/4 point change in the mortgage interest rate or your loan representative could not budge on removing points from your quotes, find another mortgage lender. You might learn more regarding your mortgage refinancing options, including costly mistakes to avoid with a free, six-part video tutorial.
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