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A "mortgage point" is equal to 1 percent of the amount of the loan, and is also sometimes paid to obtain a lower interest on a house loan. Orlando mortgage borrowers can also sometimes choose to take a slightly higher rate and get a credit from the mortgage company to pay for some or all of the closing costs on the loan. It can be a tough decision whether to pay points or "buy down" the rate of interest on a house loan. Ask yourself the following 5 questions to help sort through some of the confusion:

1) How long do I plan to own this house?

The longer you retain the mortgage the longer you will have to benefit from the lower interest rate. If you sell or refinance a year or two down the road the lower rate will most likely not have generated significant savings.

2) Can I spend the money for the extra up front costs?

Be sure you could cover your advance payment, closing costs, and maintain the required reserves, or cost savings, needed to qualify for your loan before you consider paying points. When purchasing a whole new home it's also a good idea to have a moving fund set aside for moving expenditures and buying additional items you might not realize you need until you're in the home.

3) Who is paying the closing costs?

If you are relocating for work and your boss is paying your closing costs as part of a relocation package, or the seller of the house you are buying has offered to cover the closing costs, buying down the mortgage rate could be a wonderful way to take advantage of the funds at your disposal. In both cases the amount is mostly limited to a percentage of the loan amount, so you will want to make sure that the other required closing costs are paid for, and then any remaining amount might be able to go towards mortgage points. Verify to make sure that discount points are an allowable use of the seller paid settlement costs or relocation assistance.

Whether or not to pay points usually comes down to running the numbers. Your Orlando mortgage professional can assist you calculate how many months it would require to break even when accounting for the extra up front costs. You also may want to ask a tax professional regarding the tax implications of paying points or additional interest as part of your monthly installment.

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