As you have seen over the last year, mortgage interest rates are rising constantly. If you find yourself in a situation where you need to refinance a mortgage there are steps you can take to secure a better interest rate. The simplest step is prepaying points on your new mortgage loan.
In mortgage terms, a point is equal to 1% of the mortgage amount. This is a fee you will pay at closing to receive a lower interest rate. A zero point mortgage loan will always have a higher interest rate than a loan you pay points for. Pre-paying points on your new mortgage is a trade off: you pay a fee upfront for a lower interest rate over the term of the mortgage loan.
Whether or not you should pre-pay points on your new mortgage depends on how long you plan to keep the mortgage. If you are going to stay in your home with this mortgage for at least five years it would benefit you to pre-pay points. If you think moving or refinancing may be in your near future you may be better suited for a zero point mortgage.
Mortgage lenders will let you choose from different mortgages with varying interest rates and points; be sure you compare the different combinations along with the mortgage terms before choosing a loan.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
