Home Buying in Chicago>Question Details

Kenneth, Home Buyer in Chicago, IL

Mortgage loan payment strategy

Asked by Kenneth, Chicago, IL Sat Nov 8, 2008

is it better to buy your points down or is it possible to pay down the principle on a morgage loan?

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3
Kenneth:

Discount points make more sense the longer you stay in the loan. Paying perhaps a 1% discount up front for a lower rate can save much larger sums over the life of your mortgage loan.

The question you may wish to ask yourself is what are the chances you would need to relocate for business or other personal reasons even if you want to stay forever?

Here is my blog on discount points for your consideration
http://activerain.com/blogsview/151273/What-is-a-Point

Good luck with your decision.

Greg Z
0 votes Thank Flag Link Sat Nov 8, 2008
Kenneth,

It does depend on your situation. Typically, I do not encourage paying points to buy down your interest rate because it usually doesn't make much sense. A point is one percent of the loan amount. So if you have a loan amount of $200K, a point would be $2000. A point used to pay down about .25 - .50, now it is typically about .125. Depending on how long you live in the home, it may or may not make sense. You have to look at your break even.

I do encourage everyone to try to pay down the principle on your mortgage. Just make sure you don't have a pre-payment penalty on your mortgage that would effect prepaying your mortgage. You can do this in a lump sum or the easiest way is to pay an additional payment each year. Or just add whatever you can afford - even just $10 a month adds up over time.

Again, the best option depends on your situation. Please feel free to contact me if you have any additional questions or concerns.

Thank You and Have a Great Day!

Sincerely,

Paula Calzolari
Prudential Starck Realtors
0 votes Thank Flag Link Sat Nov 8, 2008
This is a great question for your accountant, and needs more info for a proper answer.

Points are prepaid interest and may be tax deductible.

Paying down principal is not tax deductible.

Ask your accountant how best to utilize the cash.

Best of Luck
0 votes Thank Flag Link Sat Nov 8, 2008
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