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Advantage - Small business
Small business has powerful advantages over big business when it comes to marketing. You can get these advantages working for you now. The typical approach to marketing by big business is use the resource they have most of - money. They tend to...
Do You Want To Be A Pilot In The United States?
I receive many emails requesting information about becoming an airline pilot in the United States. This article addresses many of the general questions I receive about the types of pilot careers, salaries, FAA requirements, training, advancement...
Instructions on How to Put Picture on Ebay
Like many folks, you have heard of online auctions. Heck, even non-computer users have heard of Ebay. Everyone starts out as a bidder. The brave move on to be sellers. Little, by little, you learn the ropes.
One of those “ropes” that seems...
RESTORATION OF FRENCH CHATEAU
Please find enclosed an editorial on the restoration of French Property which I would be grateful if you will consider publishing:- Want a piece of the Action in Very Large French Restoration/Conversion Schemes? Throughout France there are...
What is Long Term Care?
As we grow older, our needs and ability to take care of everything in our lives changes. Aging is a natural process which will affect us all and, although most people plan for their retirement, they fail to plan beyond that point. Long Term Care...
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Should I Pay Points?
To pay points or not to pay points, that is the question. Before answering the question it is first important to understand what exactly points are. A point represents 1% of a home loan. For example, a $100,000 home loan would equate to each point being $1,000. A home loan of $150,000 would equate to each point being $1,500. This is important to understand.
Generally speaking you will be faced with the prospect of paying points at two critical junctures in the home buying process. The first time you may be faced with this decision is when you need to decide if you want to pay point(s) to lock-in your interest rate. You may pay a fraction of a point, one point or perhaps more than one point. When you are approved for a home loan you will be told an interest rate that you qualify for. That interest rate and your qualification will be for a specific period of time. It may be 30 days, 45 days, or 60 days, or any number of days in between.
Your loan officer may then tell you that you can lock-in your rate for a specified period of time. A failure to lock-in the interest rate may result in a higher interest rate when you close the loan if the closing date is after the specified duration of your mortgage commitment. Your loan officer can offer to extend that interest rate based on your paying point(s). It is important to have a general sense of what is happening with interest rates in order to make the right decision. For example, if interest rates have been raising slowly over a period of time you may decide that it is worth paying the point(s) in order to lock-in your interest rate.
Your loan officer should be able to give you their best guess as to what interest rates and what your rate may be if you do not pay to lock-in your rate. You can then calculate the amount of money
this will cost you over a year or more period of time. A simple mathematic analysis will determine if you are saving more money by paying the point(s) or not. Clearly you may not decide to lock-in if you believe the amount of money you will save is negligible compared to the cost of the lock-in.
The second time you will be faced with this decision is when you are given your overall loan package details. Generally speaking you will likely be presented with the option of paying point(s) to reduce your interest rate. So, for example, you may be told that your interest rate will be 6% with no points, however, it can be reduced to 5.75% if you pay one point or 5.5% if you pay two points. Again, mathematics will help solve this dilemma.
You need to have a general understanding of how long you anticipate living in the home, or how long you will live in the home before refinancing. That is what you can refer to as the life expectancy of this particular mortgage package. Simply calculate the amount of your mortgage payments over that period of time at both interest rates. The difference saved is the important factor. If the amount saved is greater than the points you would pay to reduce the interest rate than you may consider paying the points to lower the rate. If the amount saved is smaller than the amount you pay in points than you may consider declining the offer.
The key to the decision is having a clear sense of what your plans in the home are, plans for possible refinancing, etc. Once you have this information in mind you will find that the decision as to whether or not to pay points will be clear.
Ethan Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.homeloanave.com
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