There are many factors to consider when deciding whether or not to refinance a mortgage. Before making your decision, you need to consider refinance points. Mortgage refinancing points can be used to produce more favorable terms for your new home loan. In order to make the right decision, educate yourself about what refinance mortgage points are and how they are used; the following information can help.
What are Refinancing Points?
Typically, a single refinancing point is equivalent to one percent of the total amount of a new home loan. If your new loan will be for $200,000, then, one point would equal $2,000. Points on mortgage refinance can be used in a number of different ways. Sometimes, they are mandatory; a lender requires a borrower to pay a certain number of points at closing. Other times, they are voluntary and may be used to secure more favorable loan terms.
How Mortgage Refinance Points are Used
Refinancing points can be used in several different ways, including:
Discount Points – You can sometimes “buy down” the interest rate on your home loan by paying points at closing. For every point that you pay, for instance, your interest rate may be reduced by a quarter of one percent.
Eliminate Prepayment Penalty – Many mortgage loans include restrictions on early payoffs or buyouts. If you pay off your loan early, you could face stiff fees. Sometimes, refinance points can be used to get rid of that penalty.
To Secure Other Terms – There are a wide range of home loan products out there. Mortgage refinance points can be used to secure various types of favorable terms. A willingness to pay points upfront can have huge benefits in the long run.
Should You Pay Mortgage Refinancing Points or Not?
Many people struggle over the decision to pay refinancing points. Most of the time, it’s only beneficial to pay those points when you plan on staying in your home for quite a while. This is particularly true if you’re paying points to buy down your interest rate. How many points to refinance is usually up to you; obviously, though, the more points you pay, the more you will save over the span of a 30-year mortgage loan.
Getting the Mortgage Refinance Loan That’s Right for You
Refinancing points don’t always enter into the equation when it comes to refinancing a home loan. That being said, they should never be dismissed out of hand. Many times, paying points upfront can bring many longterm financial benefits to the table. Take your time and do the math to figure out whether or not paying mortgage refinancing points makes sense for you. If it will save you money in the long run, it could be a smart move.