Cyber Monday is a day when we potentially end up spending a lot of money on gifts for friends and family. This Cyber Monday, Quicken Loans wants to put money back in your pocket if you’re in the market for a mortgage. It may be the season of giving, but today you can give a gift to yourself.
Today only, if you lock your rate on a refinance through Rocket Mortgage® by Quicken Loans, you get an extra 0.5 point off your closing costs. We’ll go over exactly what points are and the role they play in your mortgage transaction below. For right now, let’s start with an example:
On a $200,000 loan, you would be saving $1,000 on closing costs while getting the same interest rate with the 0.5 point savings. That’s money back in your pocket.
I know what you’re thinking. What’s a point? Let’s go over what points are and what they mean for your mortgage transaction.
The Value of a Point
Also known as a prepaid interest point or mortgage discount point, points are something you use to buy down your interest rate. For example, your interest rate could hypothetically be 4.25% and you could get it down to 4.125% by paying 0.5 point.
One point is equal to 1% of the loan amount. You pay for these points by bringing money to the closing table. You can purchase points in increments on the way down to 0.125 points.
Today only, you get the 0.5 point rate without bringing any extra money to the transaction. Some people may find that it makes sense to buy down their interest rate further. In order to figure out whether this makes sense for you, let’s do a little point math.
Pointers on Point Math
In order to determine whether purchasing more mortgage discount points to buy down interest rates makes sense for you, you need to determine how much it costs to buy the points and compare it to how much you would be saving on your monthly payment. After that, you need to make an educated guess on how long you’ll be in the house.
There’s a lot going on there, but it’s not too difficult to figure out. Let’s run through an example. These rates are completely made up, but they’ll help you get an idea of how to do the calculation.
On a $200,000 home, let’s say the zero point rate was 4.25%. By prepaying for two points with interest upfront in our scenario, you might get down to 3.875% on a 30-year loan.
To figure out the monthly payment difference, I’ve used our amortization calculator. Payments may vary slightly depending on state regulations. In Michigan, a homeowner can save about $43.41 every month on their mortgage payment by paying for the two-point rate.
Two points on a $200,000 house ordinarily costs $4,000 at closing. With today’s 0.5 point pricing special, the cost of two points is $3,000. Now that we know how much the points will cost and the monthly savings on payments, we can determine the breakeven point.
You do this by taking the cost of your points and dividing by your monthly savings ($3,000/$43.41). You breakeven and start saving money on the deal if you’re going to be in the house beyond 5 years, 10 months. If you have the extra money after your down payment and you plan on staying in your house beyond that point, paying two points to buy down your rate would absolutely be a good option.
Other Ways to Use Your Savings
For some people, it may not make sense to buy down their interest rate further when they have other things they can use the money on. You might choose to put money away for a rainy day or take the $1,000 that would have otherwise been spent on closing costs and put it in your child’s college fund.
If you’re refinancing your home, it may be to get funds to replace furniture and appliances to put inside it. Using the $200,000 loan amount we’ve been discussing throughout this post, we decided to look at the things you could get in your home by saving 0.5 point ($1,000).
If you’re in the market to refinance, today just might be the day to move forward. The 0.5 point pricing incentive is good today only. If you’re ready to take the leap and save some money on your refinance, you can go ahead and get started with Rocket Mortgage® by Quicken Loans today.
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