Regine Lane, Author at Envision Funding

An Overview Of Mortgage Points Mortgage points, also known as discount points or origination points, are fees paid by borrowers at closing to reduce the interest rate on their mortgage loan. Each point typically costs 1% of the total loan amount and can lower the interest rate by anywhere from 0.125% to 0.25%.

There are two types of mortgage points: discount points and origination points. Discount points are used to buy down the interest rate on the loan, while origination points are used to cover the lender’s administrative costs.

Borrowers may choose to pay mortgage points in order to lower their monthly mortgage payments or to reduce the overall amount of interest paid over the life of the loan. However, paying points may not always be the best financial decision, as it depends on factors such as the borrower’s financial situation, the length of time they plan to stay in the home, and the current interest rate environment.

It is important for borrowers to carefully consider the costs and benefits of paying mortgage points, and to compare offers from multiple lenders to ensure they are getting the best deal possible.

When to Use Mortgage Points

Mortgage points can be used by borrowers to lower the interest rate on their mortgage loan and potentially save money on interest over the life of the loan. However, whether or not it makes sense to pay mortgage points depends on a variety of factors, including the borrower’s financial situation, the length of time they plan to stay in the home, and the current interest rate environment.

Here are a few situations where it may make sense to use mortgage points:

Long-term homeownership: If a borrower plans to stay in their home for a long period of time, paying mortgage points upfront to lower the interest rate could result in significant long-term savings.
High-interest rates: When interest rates are high, paying mortgage points may be a good strategy for reducing the interest rate and lowering monthly mortgage payments.
Large loan amounts: Borrowers with large loan amounts may benefit from paying mortgage points to reduce the interest rate and save money over the life of the loan.
Strong financial position: Borrowers with strong financial positions, including a high credit score and stable income, may be more likely to qualify for lower interest rates and may benefit from paying mortgage points to lower the rate even further.

The decision to pay mortgage points should be based on a careful analysis of your unique financial situation and goals and should take into account the costs and benefits of paying points compared to other options.

What's Ahead For Mortgage Rates This Week - May 29, 2023 Last week’s economic news included readings on new and pending home sales and inflation. The final monthly reading for May consumer sentiment was released along with weekly readings on mortgage rates and jobless claims.

Shortage of previously-owned homes for sale directs buyers to new homes

Homeowners weren’t in a hurry to sell their homes due to the low mortgage rates they obtained during the pandemic. Current mortgage rates are higher than pandemic-era rates, which influenced homeowners to stay in their homes and keep their lower existing mortgage rates. Home buyers turned to new home developments as an alternative to shopping for a home within the slim supply of available previously-owned homes.

The number of pending home sales was unchanged from March as compared to the expected reading of an 0.80 percent increase in pending sales and the March reading of a -5.20 percent decrease in pending home sales. Rising mortgage rates and concerns over the economy sidelined some sellers and would-be home buyers. Rising inflation continued to impact consumers as prices for goods and services rose by 0.40 percent in April as compared to the March increase of 0.10 percent. Year-over-year inflation rose to 4.40 percent in April as compared to the March year-over-year inflation reading of 4.20 percent.

Consumer concerns about inflation and recession were supported by the government-sponsored mortgage organization Fannie Mae, which predicted a recession in the second half of 2023.

Fed forecasts a recession and raises key interest rate range

The minutes of the Federal Reserve’s Federal Open Market Committee meeting revealed that policymakers were divided on the Federal Reserve’s monetary policy decision to raise its key interest-rate range to 5.00 percent and 5.25 percent. Some Fed members indicated that May’s interest rate hike may be the last for the near future as expectations of a recession rose.

Mortgage rates and jobless claims rise

Freddie Mac reported higher mortgage rates last week as the average rate for 30-year fixed-rate mortgages rose by 18 basis points to 6.57 percent. The average rate for 15-year fixed-rate mortgages rose by 22 basis points to 5.97 percent.

229,000 new jobless claims were filed last week; this reading fell short of the expected reading of 245,000 initial claims filed and exceeded the prior week’s reading of 225,000 claims filed.

What’s Ahead

This week’s scheduled economic reporting includes readings on public and private-sector jobs and the national unemployment rate. Weekly readings on mortgage rates and jobless claims will also be released.

An Overview Of Mortgage Points

What’s Ahead For Mortgage Rates This Week – May 30, 2023

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