Comprehending the totality of your financial obligations as a home buyer is a large part of the closing process on any home, and it’s easy to leave questions unanswered when faced with the excitement of moving onto your new property. To make sure you’re an informed home buyer with their head on straight, let’s see what New Jersey home buyers need to know about mortgage points:
What Are Mortgage Points?
Mortgage points – often referred to simply as “points” – are a way of putting additional money down on your new home at closing in an attempt to receive better terms for the life of your mortgage.
A single point is equal to one percent of the total cost of the home. So, if your new home is going to cost $100,000, each point you decide to purchase at closing will cost you an additional $1,000.
This may sound like a pretty hefty supplemental upfront investment, but there are ways spending a bit more now can pay off down the road.
What Can Mortgage Points Do for Me?
Now that we know the cost of each point, we can start delving into what these points actually do for you.
The purpose of points is to further establish that initial owner investment in the property, which means you’re immediately building more equity in the home at closing. If you have taken out a 20- or 30-year mortgage with the plan of staying there for the term of the loan, you’re only going to reap more financial benefits as time goes on.
Purchasing points is one of the best ways to gain an edge in negotiating a lower interest rate, a lowered interest rate means not paying as much money each month that goes entirely to your lender for them giving you access to the loaned funds.
Should I Bother Purchasing Points?
The easiest way of answering this question is that any home buyer should at least look into the details and potential savings from purchasing mortgage points.
It can’t hurt to run the numbers and discover how much you could save and when you would end up breaking even between the upfront cost of purchasing any points and the savings received from a reduced interest rate.
However, the big sticking point with buying points is that the savings you could receive are entirely up to the terms laid out by your mortgage lender. You can try to negotiate better terms but your lender often has a structure set up for lenders across the board when it comes to the benefits of mortgage points.
Just like previously stated, the best way to figure out if you will be able to take advantage of the savings from purchasing points is to calculate when you would overcome the costs of purchasing the points with the savings they provide.
What Else Can Impact My Monthly Payments?
Besides mortgage points, there are other factors that go into determining your mortgage’s interest rate.
Most commonly you’ll find that your credit score can have a minor impact, as it shows your history of handling available credit, but a bigger contributor to this equation is going to be your debt-to-income ratio or DTI. Your DTI is the percentage of your monthly income that goes toward nothing but paying your debts and overhead.
It displays your monthly available funds to a lender and your ability to pay the appropriate amount on time.
Help Understanding Mortgage Points in New Jersey Home Purchases
Knowing all your options when buying a home is important to make the best decision for your finances. If you’re looking to buy a home and want to better understand mortgage points and what they can do for you, contact us today at 855-966-DEAL!