What Are Discount Points and How Can They Help Me Purchase a Home?

Buying a home is one of the most significant financial decisions many people will make in their lifetime, and for most people, a home mortgage is necessary to finance the purchase of a home. Mortgage payments, however, can be a significant financial burden, especially when you consider the interest you’ll be paying over the life of the loan. One way to reduce the interest you’ll pay is by buying discount points.

So, what are discount points, and how can they help you save money on your home mortgage?

Discount points are fees paid to your lender at closing that reduce the interest rate on your mortgage loan. Each point typically costs 1% of the total loan amount, and usually lowers the interest rate on your mortgage by 0.25%. For example, if you have a $200,000 mortgage loan, one discount point would cost you $2,000, and it could lower your interest rate by 0.25%.

Buying discount points can be an excellent option for those who plan to stay in their home for an extended period. The amount of interest you save each month can add up over time and save you a significant amount of money over the life of the loan.

However, before you decide to buy discount points, you should consider the following factors:

• Your financial situation: Do you have the cash available to pay for discount points at closing? If not, it may not be worth it to buy discount points. (Pro Tip: A good Realtor can help you find a property/seller who might be willing to offer money at closing to help cover your closing cost…money which could be used to purchase discount points.)
• How long you plan to stay in your home: If you plan to sell your home within a few years, buying discount points may not be worth it because you won’t have enough time to recoup the cost of the points.
• The interest rate: Is the interest rate on your mortgage already low? If so, buying discount points may not save you as much money. (In our May 2023 market, buying discount points makes financial sense.)

Buying discount points can be an excellent way to save money on your home mortgage, but it’s not the only tool available, and that is why I partner with a reputable lender like Cardinal Financial. Cardinal offers an array of products and has the knowledge to put YOU in the best possible position to buy a home. The loan officers I work with truly put the needs of my clients above profits, finding the best products for them, and that’s why I have chosen to partner with Cardinal Financial.

If you are thinking about buying a home or dream of purchasing your first home, message me today and let’s schedule a time to talk discount points and more. I would LOVE to help you move into your dream home…maybe sooner than you thought possible!