Homebuying in 2024: Are Discount Points Worth the Cost?
When compared to previous years, 2023 mortgage rates skyrocketed, making homebuying difficult or even out of reach for some. In an attempt to alleviate this challenge, many homebuyers turned to discount points, which essentially means they paid extra money upfront to lower their interest rate. Think of it like a VIP pass to a lower monthly payment. Sounds good, right?
Well, maybe not. While more people purchased points in 2023, especially when refinancing, it wasn’t a guaranteed win for everyone. Every situation is different, and there are other factors at play that should be considered.
The Breakeven Point
Consider the example below. You can see that purchasing points works in your favor with a lower monthly payment and total savings over the life of the loan. However, it’s important to consider the breakeven point, which is the amount of time it takes to save money in monthly payments when compared to a loan without points. Each point costs 1% of the loan amount as part of the closing costs and usually reduces the rate by .25%. It can sometimes reduce it by more, which in turn reduces the breakeven point. Ideally, you hope to reach that breakeven point quickly to begin your net savings.
Many economists predict rates will start or continue to fall in the coming year. If rates fall below the interest rate you bought down to and you decide to refinance at the lower rate, then purchasing your points might not have been in your best interest. In the example below, the breakeven point is around 4 years for the points purchased.
Mortgage Experts Can Help
When it comes to weighing the pros and cons of paying for points, it’s not as cut-and-dry as it seems. Even after reaching the breakeven point, you need to consider the cost of the points in addition to the normal closing costs and down payment. With over 400 ways to configure a mortgage, there's no one-size-fits-all answer when it comes to buying a house (or saving money!), so the best thing to do is talk to a mortgage expert. They can advise you about whether it’s in your best interest to pay for mortgage points, or if you’re better off taking the rate at face value. Local mortgage experts will ask you the right questions to find a loan framework tailored to your unique situation and goals.
Stacey Sickler is the Director of Residential Mortgage Lending at C&N. Stacey has been in Mortgage Lending for 25 years including 23 with C&N. She is responsible for the mortgage lending line of business and does a limited amount of originating. Her office is in our Sayre Branch located at 1827 Elmira Street, Sayre, PA 18840.
She holds her B.S. Degree in Business Administration and Finance from Susquehanna University and is a graduate of the Advanced School of Banking at Bucknell University. She is also a graduate of the NY Penn Leadership Program. Stacey currently serves as Chairperson for the Bankers Settlement Services of Southwest PA and on the Advisory committee for the Mortgage Partnership Finance program with the Federal Home Loan Bank of Pittsburgh. Active in her community, Stacey is part of the pension committee for Athens Township and is a past trustee of the Spalding Memorial Library and former member of the Choices Program.
Stacey and her husband, David, have two sons and live in the Athens area. Away from work, Stacey enjoys time with family, the outdoors and spending time in the Finger Lakes region.
"There is nothing more gratifying than helping people realize the dream of homeownership. It's an exciting time for them and I feel fortunate to have spent my career playing a role in that."
