Mortgage Points: When Should You Buy Them?

In a buyer’s market, negotiating a seller credit that is equal to the cost of mortgage points is a strong option. 

With declines in affordability due to increased mortgage interest rates, sellers are more likely to offer incentives to get their homes sold. One of the most common incentives being a lower sales price. But these days, buyers are trading in their requests for a price reduction for an interest rate solution, either in the form of a temporary buydown or mortgage points. In this article, we lay out the basics of mortgage points and how they can help you buy smarter. Your best starting place is to get pre-approved for your options with and without points. 

What are Mortgage Points? 

Mortgage points (otherwise known as discount points) lower your interest rate for a more affordable monthly payment. The cost of a point is typically 1% of the loan amount and is paid at closing. In other words, points are an upfront cost to save monthly. 

Who Pays? 

Hopefully, the seller does. In a buyer’s market, negotiating a seller credit that is equal to the cost of points is a strong option, although buyers can choose to purchase points on their own if they’d like. Looking to the seller to essentially pay for the points might allow the buyer more flexibility to determine exactly how many points they’d like to buy. 

Some people opt for a seller credit that is equal to a fraction of or as many as three mortgage points, depending on the unique buying situation. The factors that play into how much will be negotiated are examined by three parties: the buyer, their Realtor, and their mortgage banker with the ideal end result being a great deal for the buyer and an attractive offer for the seller. 

How Much Will a Buyer Save? 

There is no one-size-fits-all number of mortgage points that will save buyers the “right” amount of money. A mortgage banker will look at the cost of the home, the loan amount, current rates, and current points options available from different investors to make a best-fit call. 

While we can’t give you a practical example of how much a buyer could save with discount points in this one blog article, but you can see the numbers for your unique situation with a guaranteed pre-approval! And you can always reach out to us to discuss your options!