Does it Make Sense to Pay Points When Financing a Florida Home Loan? It Depends…

If you are in the market for a Florida home loan, you’ve probably heard about points. But do you really understand them, and does it make sense to consider them when making plans to finance your dream home or condo? A guide from Bankrate.com, followed by a little time with the calculator, and a talk with your Florida home loan advisor, can help you with this important question.

Basically, it comes down to crunching the numbers and determining if it’s worth it in the end.

When buyers pay points, they pay interest in a lump sum up front, in order to secure a lower rate on their fixed-rate Florida home loans. A point costs 1 percent of the total amount of the mortgage. Thus, the more points you pay, the lower your mortgage rate will become. So, which is the best way to go in your position, especially in such a tough housing market? More points and a lower rate? Fewer points and higher rate?

Consider the following:

1. If you can even afford to make the payment up front right now for points. Otherwise, this could be moot.
2. The length of time expect to have the Florida home loan. If you sell your place and buy another, your mortgage will be replaced by another. No one can predict the future, but you probably have some idea of whether you think you’ll be in this home for just a few years or beyond that.

The simple rule is that the longer you plan to have your home loan, the more it makes sense to pay for points now. Since you will have a long time to benefit from the lower rate, you can defray the cost later with a few extra thousand paid to your lender right off the bat.

For instance, if you want a Florida home loan of $250,000, it will cost you $2,500 to buy a point. Rates vary from lender to lender, but customarily, a full point lowers your fixed-rate by 0.25 percent. With today’s prime rate of 6.58 percent, that could drop you down to 6.33 percent, a pretty nice reduction. But is it worth it?

Minus property taxes, property insurance and possible mortgage insurance (if you do not have the funds for a 20 percent down payment), the monthly payment on a $250,000 Florida home loan at a 6.58 percent rate is $1,593. At a 6.33 percent rate, your payment drops to $1,552.

While it’s nice to save $41 a month, it would take you 61 months — just over five years — to save $2,501, the amount you paid to get a point. So the benefits are not as great as they might seem, unless you plan on being there for awhile. Something to keep in mind. Think it through before you bend over backwards to cut your Florida home loan rate down incrementally.