A "mortgage point" is equivalent to 1 percent of the amount of the loan, and is sometimes paid to acquire a lower interest rate on a home finance loan. Orlando mortgage borrowers could also at times prefer to take a slightly higher rate of interest and get a credit from the mortgage company to cover 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 on a house loan. Find the answers of the following 5 questions to help sort through some of the perplexity:

1) Just how long do I decide to own this house?

The longer you keep the mortgage the longer you will need to take advantage of the lower interest rate. If you sell or remortgage a year or two in the future the lower interest rate will most likely not have generated significant financial savings.

2) Can I spend the money for the additional up front costs?

Make sure you can cover your advance payment, settlement costs, and maintain the necessary reserves, or financial savings, needed to qualify for your loan before you think about paying points. When purchasing a new home it's also recommended that you have a moving fund reserved for moving expenses and getting additional items you may not realize you require until you're in the house.

3) Who is paying the settlement costs?

If you are relocating for work and your employer is paying your closing costs as part of a moving package, or the seller of the home you are buying has agreed to pay the settlement costs, purchasing down the mortgage rate could be an excellent way to take advantage of the funds available. In both cases the amount is generally limited to a percentage of the loan amount, so you will want to make certain that the other essential settlement costs are covered, and then any leftover amount might be able to go towards mortgage points. Check to make sure that discount points are an allowable use of the seller paid closing costs or relocation assistance.

Whether or not to pay points generally is dependent on running the numbers. Your Orlando mortgage professional could help you determine how many months it would require to break even when accounting for the additional up front expenses. You also might want to ask a tax professional about the tax implications of paying points or additional interest as part of your monthly installment.

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