Mortgage Calculators to Determine the Value of Paying Discount Points for a Lower Interest Rate

When applying for a mortgage loan, borrowers will generally have the option to pay points to lower the interest rate being offered.  The definition of a mortgage points are fees the borrower pays the lender at the closing, which is expressed as a percent of the loan.  A point equals one percent of the loan amount.  For example, two points on a $100,000 mortgage loan would add $2,000 to the loan costs.  Numerous loan programs offer the option of lower the rate by paying more points.  A variety of mortgage calculators can be used to see the differences of paying points to change the interest rate on a loan.  These mortgage calculators calculates the monthly mortgage payment for two mortgage loans, given their interest rates, loan amounts and loan terms, and helps to determine whether paying additional mortgage points in exchange for a lower interest rate is a favorable arrangement.

Paying points for a lower interest rate is a trade off between paying money now versus paying money later.  A point is an upfront fee that reduces your monthly interest rate and total interest due over the life of a loan since it is reducing the interest rate.  The more points that a borrower pays means the lower the interest rate will be.  The mortgage calculator used to evaluate costs can be used to measure the discount points paid for a lower interest rate to analyze various interest rates and how the associated points may save or cost you money over the life of the loan. 

In order to determine if the loan is advisable by using a mortgage calculator, the user needs to know the amount of the loan, the interest rate without points, and the interest rate with the option of paying points.  You will also need to know the length of the loan.
Since there are generally a wide assortment of options on point / rate combinations available, the mortgage calculator is especially useful for inputting a variety of these options to view the results and make a decision on the most favorable combination.

To decide what combination of rate and points is best for you, balance the amount you can pay up front with the amount you can pay monthly.  The less time that you keep the loan, the more expensive points become.  If you plan to stay in your house for a long time, then it may be worthwhile to pay additional points to obtain a lower interest rate. The return consists of the savings you get in your monthly payment resulting from the lower interest rate.

The mortgage calculator for point’s, costs and interest rate analysis lets the user see the monthly payment savings, point’s value and years to break even.  The more knowledge a borrower has on these options and the benefits or disadvantages of each, the more enabled that user will be in making the best choices for their mortgage situation.

This entry was posted on Thursday, December 11th, 2008 at 2:19 pm and is filed under Mortgage Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.