Mortgage Rates: Getting Right to the Points

                   
The subprime mortgage crisis and the resulting haymaker it dealt the entire housing market has caused noticeable changes in how local homeowners look at mortgage rates and the loans they negotiate. 

The intense media focus on the residential financing industry has caused everyone to pay closer attention to the form of home loans they arrange. The truth is that borrowers are more wary about the loans they choose. They are insisting on clarity in how their choices will pencil out in dollars and cents in both near and long terms. 

One decision that determines what mortgage rates wind up on local bottom lines is whether to ‘buy down’ mortgage rates with points. Points represent interest that buyers pay up front to lower the rates on the remainder – the mortgage rates that show up at the bottom of our monthly statements.  

Increasingly, local buyers are shunning the points option. 

There are many reasons for the shift. Some are clearly related to the subprime mess, but others less so. Many of today’s buyers are entering the market for the first time, and they are cash-strapped. They may find it a struggle to come up with money for the down payment and closing costs. Often, these new homeowners simply can’t afford to pay points -- even if they can be rolled into the loan.  

Historically low interest rates are another reason area buyers at all levels are thinking harder about points vs. mortgage rates.  Last week’s national average on 30-year fixed mortgage rates (3.88%) was a full percentage point lower than a year ago – when it was already visiting the basement! Some buyers just don't see the value in making an advance interest payment – financed or otherwise – when it may only knock a fraction of a percent off an interest rate that's already at such low levels. 

First-time homebuyers can also see points as an unnecessary expense if they do not plan to stay in their homes long enough for the lower mortgage rates to return the investment. For them, it just doesn’t pencil out. 

With interest rates at historic lows and lenders competing for the same pieces of a smaller pie, it has never been more important for buyers to take a hard look at the pros and cons of the mortgage rates vs. points decision.  If you are looking for a home to buy in town and would like to discuss your options, give me a call. The time has never been better.