Mortgage points may help homebuyers in the US lower monthly costs amid high interest rates

As interest rates have climbed، homebuyers have been confronted with higher borrowing costs.

That has led more home purchasers to opt for one strategy، purchasing mortgage points، as a way to defray higher monthly payments.

Mortgage points let buyers pay an upfront fee to lower the interest rate on their loans. In some cases، sellers will help to buy down rates to help ease transaction costs.

Almost 45% of conventional primary home borrowers bought mortgage points in 2022 to reduce their monthly mortgage payments، a trend that has continued into this year، according to recent research from Zillow.

That is up from 29.6% in 2021، when interest rates were lower.

The 30-year fixed-rate mortgage currently averages 6.7% according to Freddie Mac، up from 5.8% a year ago. The 15-year fixed-rate mortgage now averages about 6%، up from 4.8% a year ago.

Pausing the interest rate hikes

This week، the Federal Reserve decided to pause the interest rate hikes it has put in place to combat high inflation.

As rates stay higher، those who are in the market for a home lose purchasing power. Some experts have urged buyers to consider purchasing mortgage points to lower their monthly payments.

Stephanie Grubbs، a licensed real estate agent at the Zweben team at Douglas Elliman Real Estate in New York، recently did exactly that when one of her clients lowered their asking price.

“This fabulous apartment just had a price reduction، which means you can use those savings to buy down your rate،” Grubbs wrote in the updated ad.

Grubbs، a former financial advisor، said her firm started bringing up the strategy more when the Fed started hiking interest rates.

“In an effort to try to be creative، we talk to sellers about offering to buy down a rate،” Grubbs said.

Other experts say buyers purchasing mortgage points can be a great strategy for the right situation.

That goes particularly if a buyer can afford the extra upfront costs.

Mortgage points refer to the percentage amount of the loan. Typically، one point is worth 1% of the loan value، according to Nicole Bachaud، senior economist at Zillow.

Some wiggle room

If the loan value is $300،000، one point would typically cost $3،000 and lower the interest rate 0.25 percentage points، she said.

“Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability،” Bachaud said.

In addition to higher upfront costs، home buyers should also weigh other factors before buying mortgage points.