Purchasing discount points provides a way for a borrower to pay up front for a lower interest rate. Each discount point usually costs 1% of the total amount (as an example, on a $250,000.00 loan a discount point would cost $2,500.00) and lowers the total interest rate of the loan (mortgage) generally by 0.25%. There are pros and cons on purchasing discount points when buying Mississauga real estate and it is important to be fully educated on how this can assist.Generally, a borrower is going to see an immediate benefit from purchasing discount points. On a $250,000.00 loan, spending $5,000.00 when securing the loan on discount points will result in a 0.5% lower interest rate which will provide ample monthly savings when compared to the original interest rate.
This makes sense when the borrower plans on living in the home or holding onto the Mississauga real estate being purchased for a long period of time. It is important to look at the loan payment schedule when purchasing discount points if the buyer does not plan on living in the home for a long period of time. When looking at the loan payment schedule, the buyer should compare two different schedules – a schedule that shows the monthly loan payments before the discount points and a schedule that shows the loan payments after the discount points are applied. When comparing these two scheduled, a borrower will be able to determine the feasibility of purchasing discount points and the impact the discount points will have on costs over a short amount of time and also a long term. A Mississauga real estate agent like Joe Battaglia at www.mississauga-homes.com can assist a new buyer when looking at this information and help them understand the information.
A lender or bank sees an immediate benefit from discount points because they receive instant up front money. This is very attractive to a bank when looking at a mortgage because they will not have to wait the life of the loan in order to receive that same money back in the form of interest. A bank is always happier having cash in hand at the present time instead of waiting to receive a specific amount of money. This lowers the overall exposure for the bank and increases their ability to use the money for additional banking business.
Discount points are an attractive way to save significant amounts of money over the life of the loan. Using the $250,000.00 example that was outlined above, a borrower may be able to purchase two discount points for a total of $5,000.00. That would reduce the interest rate by 0.5% which could provide more than a $20,000.00 savings in interest payments over a 30 year mortgage. It is important that borrowers look into this option and decide if it is a financially feasible solution.
At Joe Battaglia Mississauga Real Estate Agent website, you can find new MLS listings everyday. So what are you waiting for start your search now for Mississauga condos for sale. Call is to get free home evaluation now at: Mississauga-Homes.com
