A "mortgage point" is equal to 1 percent of the loan amount, and is also sometimes paid to acquire a lower interest on a home loan. Orlando mortgage borrowers can also at times choose to take a slightly higher rate and receive a credit from the mortgage company to pay for some or all of the closing costs on the loan. It could be a tough decision whether to pay points or "buy down" the rate of interest on a home loan. Ask yourself the following 5 questions to help sort through some of the perplexity:

1) How long do I plan to own this home?

The longer you retain the mortgage the longer you will need to benefit from the lower rate. If you sell or refinance a year or two in the future the lower rate will most likely not have generated significant savings.

2) Can I afford the extra up front costs?

Make sure you could cover your down payment, closing costs, and maintain the necessary reserves, or savings, needed to qualify for your loan before you consider paying points. When buying a whole new home it's also a good idea to have a moving fund reserved for moving expenditures and purchasing additional items you might not realize you require until you're in the home.

3) Who is paying the closing costs?

If you are moving for work and your boss is paying your closing costs as part of a moving package, or the seller of the house you are purchasing has offered to pay the closing costs, buying down the mortgage rate can be an outstanding way to take advantage of the funds available. In both cases the amount is mostly limited to a percentage of the loan amount, so you will want to be sure that the other necessary settlement costs are paid for, and then any remaining amount may be able to go towards mortgage points. Verify to make sure that discount points are an allowable use of the relocation assistance or seller paid settlement costs.

Whether or not to pay points often is dependent on running the numbers. Your Orlando mortgage professional can help you calculate how many months it would take to break even when accounting for the extra up front costs. You also may choose to ask a tax professional regarding the tax implications of paying points or additional interest as part of your monthly payment.

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