What do you know about mortgages?
Confident that you know all you need to know about mortgage rates? Don’t be so sure! A recent survey of 1,005 prospective home buyers conducted by the web site Zillow revealed that nearly half of those polled didn’t have a clue — and proved it by not knowing mortgage rates basics, like that lender fees are negotiable and how adjustable mortgages work.
The mortgage market is not set in stone. Like other marketplaces, things can and do change. In fact, mortgage rates can change several times a day; more than half of those in the poll didn’t know that, either.
Other examples?
Forty-two percent didn’t know that anyone other than first-time borrowers could qualify for an FHA loan. In fact, FHA loans are available to current homeowners as well as to first time home buyers, and mortgage rates are competitive.
Forty-five percent of those polled believed people shopping for the best mortgage rates should always buy discount points when obtaining a mortgage.
Buying discount points — which are fees paid to a lender at closing in order to lower your mortgage interest rate — is not always a good idea because the purchase can cost you more money than it saves.
The cost of each point is equal to 1 percent of the loan amount. Whether or not buying them will help you depends on how long you plan to own the home.
Whether or not paying points makes sense for you depends in part on how long you plan to keep the loan. Use a mortgage calculator to help you decide.
Should you pay those points?
To figure out whether buying points will help or hurt your mortgage rate, you must calculate how much your monthly payment will be at the interest rate you’ll be pay without buying points, and how much you’ll pay if you do buy them.
Next, deduct the lower payment from the higher payment to find the amount you’ll save every month.
The, divide the amount charged for points at closing by how much you’d save on your monthly payment. That number is the number of months you’ll have to keep the loan to break even on paying points.
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