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What Effect Do Discount Points Have on Coral Springs Home Loans
Are you in the process of trying to find Coral Springs home loans that are best suited for you? There are different kinds of home loans that you can get from NHL Lending in the Coral Springs area including:
When shopping for home loans there are a couple of things you need to consider. One such factor is discount points.
Defining Discount Points
When NHL Lending offers Coral Springs home loans, the mortgage rate is usually quoted in two parts. The first part includes NHL Lending’s mortgage rate while the second part quotes the number of the borrower needs in order to get that rate.
If the borrower has a high number of discount points, they will get a lower mortgage rate and the inverse is true.
Discount points are a type of fees that are used to negotiate a better mortgage rate for the borrower. They are not the same as origination fees. Origination fees are a charge levied by a bank to do your loan. Sometimes discount points will be reflected as a Mortgage Rate Buydown or a Discount Fee on a settlement statement.
Each discount point has 1% of the value of your loan size.
Let’s say that you want a total loan of $100,000. Below are values of various discount points for your loan.
Total Loan Value
Discount Point Value
Something you need to note about home loans discount points is that they are tax deductible. They can be claimed on your federal income taxes.
However, it is a little bit complicated. So, discount points that are paid on a mortgage loan are 100% deductible in the year in which they are paid, however, they are not tax deductible in the same year if paid on a home refinancing loan.
Instead, discount points that are paid on a refinance loan are tax-deductible over the term of the mortgage. Below is an example to explain this further:
A homeowner with a refinanced 30-year fixed mortgage rate can claim 1/30 of the discount paid as an annual deduction.
In order to get maximum federal income tax deductions, you will need to talk to your tax preparer.
Below is a reflection of discount points in the week of 03/15/2018 according to Freddie Mac.
30-Year Fixed Rate Mortgage
15-Year Fixed Rate Mortgage
5/1-Year Fixed Rate Mortgage
Benefits of Home Loans Discount Points
The relationship between mortgage rates and discount points is an inverse one. So, if the borrower wants to get a lower interest rate from the lender they can negotiate it by paying higher discount points. This makes discount points very popular with borrowers.
Many borrowers are usually focused on reducing the mortgage payments as well as the total amount of interest paid during the term of the loan. A borrower can decide to buy down their interest rate at closing.
Even though it means that the borrower will need to pay more on closing day, discount points will save you a lot more over the term of the Coral Springs Home Loans.
What Is the Interest Rate Reduction When You Use Discount Points?
Discount points, as well as corresponding rate reductions, are not standardized across the market. They vary from one lender to the next. At NHL Lending, we offer competitive rate reductions. You can get in touch by calling us on (888) 995-6624.
When you buy discount points from most lenders your mortgage interest rate on a 30-year fixed mortgage rate will vary between ¼ to 3/8 of the value of the total amount to be borrowed.
Even though that might not seem like much when you consider the reduction rate over a repayment term it could last for many years.
Now that you have a firm understanding of what discount points are and how a borrower can use them to their benefit, let us look at when it is logical to use them.
If you plan on staying in your new home for a long time and would like to reduce the monthly payments you make to your lender, then you definitely should consider discount points.
The other scenario is where the borrower does not have enough money in their account to make a large payment at closing. As the borrower, you can elect the zero points option which will reduce the amount of money you have to pay at closing. The downside to this is that you will end up paying higher interest rates over the term of the loan.
When applying for Coral Springs home loans from NHL Lending we will show you a breakdown of your monthly payments as well as interest rates over the term of your loan.