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With Mortgage Rates in Washington Rising, Does It Make Sense to Pay Points?

Mortgage rates in Washington State and nationwide have risen since the beginning of 2018. As a result, we could see an increasing number of home buyers using discount points to secure a lower rate on their mortgage loans. Here are the latest trends and developments on this front.

MBA: Average Mortgage Rates Cross 5% Threshold

According to an October 10, 2018 news release from the Mortgage Bankers Association (MBA), mortgage rates just climbed above the 5% threshold for the first time in years. Specifically we’re talking about the average rate for a 30-year fixed home loan, the most popular product among borrowers.

To quote the MBA’s October 10 report:

“The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since February 2011, 5.05 percent, from 4.96 percent, with points increasing to 0.51 from 0.49 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.”

At the start of this year, the average rate for a 30-year fixed home loan was 3.95% according to Freddie Mac’s industry survey. That means it rose by more than one percent from January to October 2018.

(Note: As of October 10, Freddie Mac was reporting a nationwide average of 4.71% for 30-year mortgage loans. That’s lower than the MBA’s latest reading. Different data, different results. The Freddie Mac survey will be updated again on October 11, so perhaps we will see an increase at that time.)

The point is that mortgage rates are higher now than at the start of this year, and that could motivate some borrowers in Washington to use discount points.

Using Discount Points for a Lower Rate

A “discount point” is an amount of money paid by a borrower at closing in exchange for a lower interest rate. One point equals one percent of the loan amount, and it’s typically paid at closing.

Borrowers who can afford to pay a little extra up front often use this strategy as a way of “buying down” the mortgage rate. When used as a long-term strategy, paying points has the potential to save the borrower a considerable amount of money.

With mortgage rates in Washington rising, we might see an increase in the number of home buyers and homeowners who choose to pay points at closing.┬áThe more points paid by the borrower, the lower the rate. So it’s a tradeoff. There’s more money paid up front, but the lower rate could produce savings over time.

As mentioned above, this strategy tends to work best for a long-term stay. Depending on the amount of points paid at closing, it could take a few years for the savings (derived from the lower mortgage) to surpass that extra amount paid to close.

Home Prices Still Rising in Washington

Meanwhile, home prices across Washington State continue to climb. The median home value for the state as a whole had risen to $370,700 as of October 2018, when this article was published. It was closer to $700,000 in Seattle, and even higher in Bellevue and Sammamish.

The latest forecasts predict that home values across the state of Washington will continue to rise steadily over the coming months.

This too could have an impact on the number of borrowers in Washington who choose to pay points at closing. Higher home prices and interest rates could make the discount point strategy more attractive to some home buyers.

Get a mortgage estimate: Need a mortgage loan in Washington? We can show you if and how you might benefit from paying points, based on your specific financing needs. Please contact our knowledgeable staff for help.

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