Beware Unnecessary Discount Points

Refinance rates keep dropping breaking records nearly every week. Despite historically low mortgage rates many homeowners get caught playing “how low will you go” at the expense of fees. When you’re refinancing the closing costs you pay decide how good of a deal you’re getting regardless of your interest rate. Here’s a tip before you refi to help you avoid one common mortgage mistake that could cost you thousands of dollars.

Par Mortgage Rate Definition

If you’re in the market to refinance par mortgage rate is a term you need to familiarize yourself with. What are Par Mortgage Rates? Simply put a lender’s par rate is one that does not include discount points or markup for Yield Spread Premium. Discount points are a fee you pay at closing on your mortgage refi to buy down your interest rate. Yield Spread Premium is like negative discount points, cash you get back for taking a higher refinance rates, usually used to pay your loan origination fee and closing costs.

Most lenders quote refinance rates that include discount points, meaning their advertised mortgage rates are not as low as they seem. Whenever you see lenders advertising a mortgage rate that’s significantly lower than what other lenders are advertising, you’ll find discount points hidden in the fine print.

You can get that lender’s ultra-low refinance rates but it’s going to cost you a pretty penny in the form of pre-paid mortgage interest.

Discount Points Are a Waste of Your Money

Like a remnant of the cold war, discount points were useful in the 80s when mortgage rates were double digits. Today, refinance rates are beating sixty-year lows so what’s the point in paying thousands of dollars just to lower an already low rate by .25 or .5 percent?

The problem with paying unnecessary points or overpaying your loan origination fee is that it lessens the benefit you’re getting from today’s low refinance rates. You need to break even recouping your out-of-pocket expenses paid at closing or your simply throwing your money away by refinancing.

Here’s a Free Mortgage Tip: Beware loan offers that quote you insanely low refinance rates but neglect to mention that it costs a point or two to get that rate.

Loading mortgage rate quotes with unnecessary discount points is a commonly used bait and switch tactic used to get you in the door. Once you’ve committed to mortgage refinancing the truth comes out of the fine print and you’re stuck with a higher par interest rate.

Is Paying Discount Points Ever a Smart Move?

Refinance mortgage rates haven’t been this low in over sixty years. The last time it made sense to pay points Reagan was in the White house and big hair styles were in vogue. Why throw away your hard-earned cash for no reason?