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This is part of an ongoing blog series that discusses commonly used mortgage strategies among home buyers and homeowners in Washington. Today, we will look at how borrowers in Washington State might be able to lower their mortgage rates by paying discount points at closing.
For some borrowers, the number-one goal when shopping for a mortgage loan is to get the lowest rate possible. There are several different factors that can affect the rate you receive on a home loan. They include the type of loan you are using, your credit history, and other factors.
“Discount points” can also influence the mortgage rate you receive when taking out a home loan in Washington. These are points paid to the lender in exchange for a lower rate. They are added into your overall closing costs, which means you would pay them on the day that you close the loan.
Definition: A discount point is essentially a form of prepaid interest that is applied to a mortgage loan. They typically equal 1% of the loan amount that’s being borrowed. For example, on a $300,000 mortgage loan, one point would come to $3,000 — or 1% of the amount borrowed.
In a typical lending scenario, paying discount points is optional. Some home buyers and homeowners in Washington choose to pay points in order to get a lower mortgage rate, while others do not. So why do it? The idea here is to pay a certain amount of money up front in order to reduce the Washington mortgage rates, which could save the borrower money over time.
The break-even point is another important concept here. This is when your accumulated savings from securing a lower rate begin to exceed the amount paid in prepaid interest.
As a borrower, you want to choose the mortgage financing strategy that works best for your particular situation. And that’s one of the many areas where we can help you. Our knowledgeable loan officers can present you with different financing options (e.g., with and without discount points), so you can see how it would play out over time.
Will you need mortgage financing to buy a home? We can help. Sammamish Mortgage has been serving buyers across the Pacific Northwest for more than 27 years. We currently lend in all of Washington, Oregon, Idaho, and Colorado. Sammamish Mortgage offers a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us today with any financing-related questions you have.
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