Karl's Mortgage and Related Info Site

What Are Points and When Should You Pay Them?

Interest Rates: When is the Best Time to Lock?

How Much Money Should You Borrow? 

Karl Peidl
Accredited Loan Consultant
Pleasant Valley Home Mortgage Corp.
Phone: 856-252-1224
Cell: 609-254-6687
kpeidl@pvhmconline.com
www.karlpeidl.com

Mortgage Rate Update
Know Your Credit Score

In the past, it wasn't out of the question to obtain a mortgage with a FICO score in the low 500 range. In fact, if you were willing to accept the payment, you could even do so with little money down.

Today, however, if you have a low FICO score, you may not be able to get a mortgage. In fact, depending on how much of a down payment you can afford and the mortgage program you are applying for, you may be looking at a minimum score of 680 to obtain a mortgage.

The point is, your credit score is more crucial than ever-not just for getting a low rate, but for qualifying for a mortgage at all.

So, before you sign a purchase contract or apply for financing, take the time to have your credit profile checked out. Often, there are steps you can take to help correct and improve your credit score. But doing so, requires the insight and advice of a professional who knows what to look for and what to do to achieve the desired results.

If you think your credit score and credit profile could use even a little improvement, contact me to discuss your situation. With a short conversation, we can discuss what your credit score looks like and what options you have.

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Thursday, 24th December, 2009:

*Rates are subject to change due to market fluctuations and borrower's eligibility.

What Are Points and When Should You Pay Them?

Points are up-front fees paid by the borrower to obtain a better interest rate on a loan. One point equals one percent of the loan amount. And while a lower interest rate may result in a lower monthly payment, it is important to consider how long you intend to be in the loan and to compare current interest rates to historical market trends. This will help you to determine whether paying points is a worthwhile investment.

Let's look at a sample scenario. If you take out a $300,000 mortgage and decide to pay one point in order to lower your interest rate, this would translate into an up-front cost of $3,000. To keep things simple, we'll assume that paying this one point will save you $50 a month. This means it will take you 60 months to recoup the cost of that point. If you decide to refinance or sell the home before the 60-month mark, your money is lost - not to mention the opportunity cost of not having this money invested elsewhere. In this scenario, you would only benefit financially from paying points if you were to remain in the home for no less than 60 months.

It's also important to remember that interest rates run in cycles. When rates are at historical lows, it makes more sense to pay points if you plan to live in the home for an extended period of time. If it's unlikely that rates will go down in the near future, then there will be no need to refinance.

When interest rates are high, however, there is a strong likelihood that they will come down again before too long. Therefore, this is not a good time to pay points. The chances of refinancing in the near future are extremely high, and you will likely not be in the loan long enough to recoup the up-front cost of the points.

Tax deductibility is another thing to consider when choosing whether or not to pay points. For new purchases, interest from both points paid and your mortgage are tax deductible up front. For refinances, however, points are not deductible up front. Instead the deductions are spread out over the term of the loan (unless the entire loan is paid off early), making points more costly in comparison.

Ultimately, there's a lot to consider when it comes to points and whether or not they are a worthwhile investment. An experienced mortgage professional will work with you to determine the best course of action based upon your specific situation. Request a comprehensive cost comparison to see whether paying points could be financially beneficial to you.

If you or someone you know would like to learn more about points and whether they should be a part of your mortgage plan, give me a call. I would be happy to assist you!