Understanding Mortgage Points: Calculate, Compare, Decide
Explore the world of mortgage points by learning how to calculate discount points, determine breakeven time, and evaluate if buying points is a wise decision. Through examples, understand how purchasing points can affect your interest rate and overall cost, helping you make informed decisions when financing your home.
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7-5 Mortgage Points OBJECTIVES Calculate discount points for a mortgage. Determine the breakeven time for discount points. Calculate negative points. Slide 1
Key Terms mortgage points breakeven negative points Slide2
Is buying points a wise decision? Will the discount be worth it? Compare costs with and without. Slide 3
Example 1 Elizabeth and Nicholas want to buy a new home in Sunset Park. They need to borrow $350,000. Their bank offers an opportunity for the couple to buy down the quoted interest rate of 4.5% by 0.125% per point purchased. Each point will cost 1% of the amount borrowed. What will be the new interest rate if 2 points are purchased? What will be the cost to purchase 2 points? Slide 4
Example 1 Elizabeth and Nicholas want to buy a new home in Sunset Park. They need to borrow $350,000. Their bank offers an opportunity for the couple to buy down the quoted interest rate of 4.5% by 0.125% per point purchased. Each point will cost 1% of the amount borrowed. What will be the new interest rate if 2 points are purchased? What will be the cost to purchase 2 points? Slide 5
Example 1 Elizabeth and Nicholas want to buy a new home in Sunset Park. They need to borrow $350,000. Their bank offers an opportunity for the couple to buy down the quoted interest rate of 4.5% by 0.125% per point purchased. Each point will cost 1% of the amount borrowed. What will be the new interest rate if 2 points are purchased? What will be the cost to purchase 2 points? Slide 6
Example 2 How can Elizabeth and Nicholas (from Example 1) determine whether or not the purchase of the points makes sense for their situation if they have a 15 year lease? Slide 7
Example 2 How can Elizabeth and Nicholas (from Example 1) determine whether or not the purchase of the points makes sense for their situation if they have a 15 year lease? Slide 8
Example 2 How can Elizabeth and Nicholas (from Example 1) determine whether or not the purchase of the points makes sense for their situation if they have a 15 year lease? Slide 9
Example 2 How can Elizabeth and Nicholas (from Example 1) determine whether or not the purchase of the points makes sense for their situation if they have a 15 year lease? Slide 10
Example 2 How can Elizabeth and Nicholas (from Example 1) determine whether or not the purchase of the points makes sense for their situation if they have a 15 year lease? Slide 11
Example 3 How much will Elizabeth and Nicholas (from Example 1) save over the life of their loan from the purchase of the 2 points? Slide 12
Example 3 How much will Elizabeth and Nicholas (from Example 1) save over the life of their loan from the purchase of the 2 points? Slide 13
Example 3 How much will Elizabeth and Nicholas (from Example 1) save over the life of their loan from the purchase of the 2 points? Slide 14
Example 4 Suppose Elizabeth and Nicholas had received an estimate of their closing costs in the amount of $10,500 excluding prepaid interest and homeowners insurance. Their lender offered them the option of reducing those costs by raising their mortgage interest rate according to the following plan: How can they determine if it is worth taking the 4.875% APR in exchange for zero closing costs? Slide 15
Example 4 Suppose Elizabeth and Nicholas had received an estimate of their closing costs in the amount of $10,500 excluding prepaid interest and homeowners insurance. Their lender offered them the option of reducing those costs by raising their mortgage interest rate according to the following plan: How can they determine if it is worth taking the 4.875% APR in exchange for zero closing costs? Slide 16
Example 4 Suppose Elizabeth and Nicholas had received an estimate of their closing costs in the amount of $10,500 excluding prepaid interest and homeowners insurance. Their lender offered them the option of reducing those costs by raising their mortgage interest rate according to the following plan: How can they determine if it is worth taking the 4.875% APR in exchange for zero closing costs? Slide 17
