first time home buyers

30-Year vs. 15-Year Mortgage: Four Questions to Ask When Comparing Your Options

I get a lot of questions about 15 year mortgages. It seems the advertising is working, however as with anything, there are pros and cons to taking a short-term loan. Here are four questions that can help you make a more informed decision when comparing a 30-year fixed rate mortgage vs. a 15-year fixed rate mortgage.

1 – What will I do with the difference in cash flow?

There are two main benefits that a 15-year mortgage has vs. a 30-year mortgage:

1 – Fifteen year mortgages often carry lower interest rates vs. thirty year mortgages. This could save you some money over time. (See Figure 1 that illustrates what would happen if the interest rate on a 15-year mortgage was 0.5% less than the interest rate on a 30-year mortgage.)
2 – Fifteen year mortgages are paid off in half the time of thirty year mortgages. This results in less interest over time and no monthly payments after 15 years. (See Figure 1.)

Even so, you could accomplish similar results by investing the extra cash flow experienced from the lower payments on a 30-year mortgage. (See Figure 2.) Therefore, the main issue here is: what will you do with the difference in cash flow if you choose a 30-year mortgage? Here are three options:

Option 1: Invest the extra cash flow. This could be worth consideration if you’re looking to build your retirement account or a child’s college fund.
Option 2: Spend the extra cash flow. This could be worth consideration if you’re looking to enhance your lifestyle or create more life experiences.
Option 3: Use the extra cash flow to bid higher or buy a more expensive house. This could be worth consideration if you’re facing tough competition from other buyers in your market and if home values are likely to increase.

2 – What’s the outcome in 15 years?

As you can see from Figure 2, you’ll probably come out ahead going the 30-year mortgage route if you invest the extra cash flow. Further, you’ll have access to the funds after 15-years as they’d likely be in a liquid investment account vs. being trapped in your home equity. The bottom line is that you are in more control of your cash flow with a 30-year vs. a 15-year mortgage.

3 – What’s the outcome in 30 years?

See Figure 3 for an illustration showing a comparison over a 30 year timeframe. With the 15-year option, we are showing what would happen if, in years 16-30, you invest the entire monthly payment that you no longer have with the 15-year option. With the 30-year option, we are showing what would happen if you simply invest the extra cash flow each month for 30-years. As you can see from Figure 3, you’ll probably come out ahead going the 30-year mortgage route if you invest the extra cash flow.

4 – What’s the risk with either option?

The main risk with a 30-year fixed rate mortgage is that you may not be disciplined enough to use the extra cash flow in a productive way that improves your life. As with any other choice in life, it’s up to you to stay the course.

The main risk with a 15-year fixed rate mortgage is that you may find it difficult to make the higher monthly payment if you run into financial challenges down the road. So it really boils down to this: would you rather obligate yourself to a higher monthly payment with the 15-year option, or would you rather bet on yourself that you’ll make smart choices with the extra cash flow you experience with the 30-year option?

In either case, this is probably one of the most important financial transactions of your life. My commitment is to communicate and strategize with you every step of the way. Contact me for more info and I’ll be happy to run the numbers for your specific situation!

*PLEASE NOTE: This article is provided for educational purposes. The examples and interest rates used in this article are for illustrative purposes only. The US government requires me to disclose that this is not a commitment to lend you money under Regulation Z, this is not an advertisement for a particular loan program or for particular interest rates, and you are not pre-approved or pre-qualified for any of the options illustrated in this article. You are welcome to complete a loan application to find out if you qualify and what loan programs you may qualify for. Also keep in mind that these illustrations don’t take into account the additional tax advantages that may be available with the 30-year option vs. the 15-year option. Finally, the scenario would be impacted by the rate of return you are able to earn on investments. We are using 6% in our example, but your actual return will vary depending on the type of investment you choose. Please see a CPA or financial advisor for more details.

Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com
https://www.apexhomeloans.com/scottshenton
(240) 268-3156
3204 Tower Oaks Blvd, Suite 400
Rockville, Maryland 20852

Apex Home Loans, Inc. NMLS #2884. For more information, please reference the NMLS Consumer Access Website at http://nmlsconsumeraccess.org. Licensed by: DE as a Lender by the Office of the State Bank Commissioner (011603); DC as a Dual Authority Mortgage Lender by the Department of Insurance, Securities and Banking (MLB2884); FL as a Mortgage Lender by the FL Office of Financial Regulation (MLD1088); MD as a Mortgage Lender by the Dept. of Labor, Licensing & Regulation (06-4989); N.J. Department of Banking and Insurance (2884); PA as a Mortgage Lender by the Dept. of Banking & Securities (45078); VA as a Lender and Broker by the State Bank Commissioner (MC1278); and WV as a Mortgage Lender by the WV Division of Financial Institutions (ML-34657).

Rate Shopper’s Report 2/21/17

Market Update

Tuesday, February 21, 2017

What’s going on and why does it matter?
Mortgage bonds opened lower this morning, while positive economic news in Europe is causing stock markets to resume their upward momentum. Mortgage bonds are now firmly below their 30-day moving average, which is likely to operate as a level of technical resistance. The good news is that bonds enjoy testing their limits… so they may attempt a rebound later this week to test the limits of their 30-day moving average. Although the economic calendar is light today, the Fed is scheduled to purchase up to $2.425 billion of 30-year conventional mortgage bonds.

What should you do about it?
Lock your rate to be safe; but keep in mind that mortgage bonds may attempt a rebound later today or later this week.

Economic Calendar

Economic reports that may impact mortgage rates this week:

Date	Report	Period	Prior	Estimate	Actual
Wed 22 Feb	Existing Home Sales	Jan	5.49M	5.54M
Thu 23 Feb	Initial Jobless Claims	Week of Feb 13	239,000	241,000
Fri 24 Feb	U of Mich. Consumer Sentiment	Feb	98.5	96.0
Fri 24 Feb	New Home Sales	Jan	540,000	570,000

Rate Watch Report: February 13th 2017

Market Update

Monday, February 13, 2017

What’s going on and why does it matter?
Mortgage bonds opened lower today as stocks continue to rally in response to President Trump’s announcement last week that a “phenomenal” tax plan will be announced soon. Fed Chair Yellen is scheduled to give her semiannual monetary policy report to Congress on Tuesday and Wednesday. The market will be watching for any indication as to when and how the Fed will begin to unwind its massive holdings of mortgage bonds. Speculation is that the Fed will stop buying mortgage bonds sometime later this year, and the market will be looking for Yellen to confirm or deny these rumblings. The Fed’s mortgage bond purchases are very light this week because they won’t be in the market tomorrow and Wednesday due to Yellen’s testimony. In fact, the Fed is only scheduled to purchase 30-year conventional mortgage bonds during one operation later this week. As for today, the Fed is scheduled to purchase up to $1.75 billion in GNMA and 15-year conventional mortgage bonds.

What should you do about it?
Lock your rate to be safe.

Economic Calendar

Economic reports that may impact mortgage rates this week:

Date	Report	Period	Prior	Estimate	Actual
Tue 14 Feb	PPI final demand	Jan	+0.2%	+0.3%
Wed 15 Feb	Core CPI	Jan	+0.2%	+0.2%
Wed 15 Feb	Real Weekly Earnings	Jan	+0.1%	0.0%
Wed 15 Feb	Retail Sales	Jan	+0.6%	+0.1%
Wed 15 Feb	Industrial Production	Jan	+0.8%	0.0%
Wed 15 Feb	Capacity Utilization	Jan	75.5%	75.5%
Wed 15 Feb	Mfg. Output	Jan	+0.2%	+0.2%
Wed 15 Feb	Business Inventories	Dec	+0.7%	+0.4%
Thu 16 Feb	Building Permits	Jan	1.21M	1.23M
Thu 16 Feb	Housing Starts	Jan	1.23M	1.22M
Thu 16 Feb	Initial Jobless Claims	Week of Feb 6	234,000	245,000

How to Select a Title Company by Matthew Chance (guest blogger)

Over the past year, I’ve had the opportunity to work with Matt Chance with Community Title Services, Inc., a great deal and in that time I’ve come to trust his advice on a variety of real estate related topics. As the Managing Attorney of a successful title company, Matt has offered these great tips on how to make an educated decision on how to choose who will handle your settlement. Read on and allow Matt to remove the mystery surrounding this important decision.

~Scott Shenton

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Selecting a Title and Settlement can be one of the most difficult decisions you face during the home buying process. Generally, it is also one of the areas consumers know the least about. This short article is about what your settlement company does and how you can compare companies.

What Does My Settlement Company Do?

Settlement and Escrow companies serve as an intermediary for Real Estate transactions. The mortgage lender, the real estate agents, the seller, and you, the buyer, all communicate with us during the process of buying or selling your home. They also hold funds associated with the transaction in an escrow account to be paid at settlement.

Settlement Companies do the work behind transferring legal title to real property from one party to the other. The transfer entails making sure the property has been transferred correctly in every previous transaction involving the property in question. During this process we check to make sure the Buyer knows about all the easements and encumbrances that affect the property. Easements and encumbrances can affect how you can use the property and it is essential to know about them. In addition we ensure all taxes are paid, all fees associated with a transaction are paid properly, and that title will be held in the manner in which you desire. Title can be held in a number of different ways, each with its own advantages and disadvantages. After title has been searched and a title binder has been written we send the information to the mortgage company for your file. During that time we begin the process of procuring title insurance from one of our underwriters. Title insurance covers issues with the title of the property from your closing date back in time. It is a unique insurance that covers past problems, not future ones. Title insurance is essential to your protection because many issues cannot be seen easily. Unrecorded easements and encumbrances, improperly filed documents, and a litany of other issues can arise after closing, title insurance will help pay to have these issues fixed. Once insurance has been procured and the mortgage has been approved, the mortgage company sends the closing documents to the title company and a settlement directed by the title and settlement company occurs. Our work doesn’t stop there though. After settlement, the title and settlement company records the Deed and other documents requiring recordation. We pay the local, county, and state taxes, the final water bill, and any other fees associated with the transaction. We provide the mortgage company with the signed documents and each party receives copies of the documents they signed.

How Do I Choose a Settlement Company?

As you can see the settlement company is an extremely important part of your transaction. There are several questions that should be asked of any company before agreeing to use their services.

What fees do they charge? There is a large difference in the fees being charged by different companies, some are more than double than others. The fee should be fair for the work provided, the cheapest is not always the best option, but don’t be afraid to ask what you are getting that justifies the fee. Also be sure to ask if the fees they have listed in their offer constitutes all of the fees or if there will be more that come up later in the process. Title insurance should be properly explained to you, and the settlement company should provide you with a quote on standard policies and enhanced policies, and explain the difference in coverage to you.

Does the company understand the different ways to hold title? Having a company that can properly explain the differences in ways to hold title is extremely important. There are very small differences in the ways to hold title that can have dramatic effects in passing the house to heirs and spouses.

Settlement Companies are not required to be licensed to practice law. Does your settlement company have an attorney? Is that attorney knowledgeable in title related fields? Are they available to talk to you at all points during the transaction? All of these questions are extremely important to ask before the transaction starts.

Finally, does your lender have a relationship with a company? All other factors being equal, it is extremely important that your lender has a good working relationship with the settlement company. The lender is constantly in contact with the settlement company and picking company they work well with can make the transaction much smoother.

Know where your lead sources come from, why is a company recommending a settlement company to you? Is it because that settlement company does a terrific job and has reasonable fees, or is there another reason? It’s a question that should be asked every time. Your settlement company is far more involved in the transaction than you realize. They should be available to you at all times, and be able to answer your questions right away.

Matthew Chance, Esq., Community Title Services, Inc.

President of Sales and Marketing

3527 Urbana Pike, Frederick MD 21704

(O) 240-415-6290

www.communitytitlemd.com

How is the 2017 Housing Market? by Matt Titus (Guest Blogger)

Last year, a mutual friend introduced me to Matt Titus with Re/Max Advantage in Fulton MD. Matt is one of those rare individuals who from the moment you meet them, you know you can trust their advice and that his intelligence and ethics will shine through in everything they do. When I asked Matt to contribute to the New Market Mortgages Blog, he jumped at the chance to share his insights and wisdom. Read on and learn how to understand the real estate market.

~Scott Shenton

How is the 2017 Housing Market? by Matt Titus

There’s always been a love/ hate relationship with the most common question for realtors; “how’s the housing market?”. However, this age-old conundrum persists for one simple reason; this question is not easily answered in a way that applies to everyone. Understanding the housing market is dynamic, ever-changing and different for each person you meet. What might be relevant to one buyer, may not be to another, therefore there is no one size fits all answer. To properly answer this question in a way that benefits everyone, I’ll provide some realistic guidelines to help you with your decision-making process, along with some factual data to act as a foundation for your choices as a house-hunter. Utilizing these strategies, you’ll be well armed to not only understand the current housing market, but to understand the elements that matter most to you.

Look at recent trends and decide what that means to you. The housing market reached its effective bottom a several years ago, with a very low volume of sales and little market activity. With the economic markets and consumer confidence on the upswing, it only looks to be trending upward at this point. While an increase in buyers is good for sellers, it can present a challenge for buyers. Decide what that means to you and adjust your strategy accordingly.

Current length of time a home takes to sell (close) approx. 2.5 months – historical healthy normal market length of time approx. 6 months

Recent years have provided historically low interest rates to consumers. However, many lenders and agents currently are now urging their clients to purchase or refinance sooner than later, because 2017 looks to be the year that rates start a long and steady climb into a more normal range (may not be a steep climb, but it’s not sloping downward). How does a rising rate environment affect your ability to buy?

The housing market has also seen prices increase over the past couple of years at steady pace, consistent with historical norms. That’s good news for both buyers and sellers, since anyone who owns a home stands to gain equity in their property. However, with more buyers set to begin the process obtaining home and a limited number of homes on the market to purchase, there could be an upswing in prices due to supply and demand. At the very least more competition between buyers, can result in sellers being less willing to provide closing assistance. Either way, this trend affects buyers and sellers differently. The trend is predicted to continue as well, so the window of opportunity for buyers is getting smaller.

Market activity – the blue bars represents purchases and the yellow bars provide an indicator of homes currently on the maket available to purchase in that period. Buyer demand is outpacing homes listed on the market.

To Summarize, here are a couple of quick notes to drive the points home and help you decide what these trends me to you.

Affordability will be reduced – higher interest rates/ tougher competition for buyers/ less seller assistance
Increased demand from buyers and limited supply of homes for sale will increase home sale prices
Interest rates raising, competition growing among buyers will create a fierce 2017 housing market for both Buyers and Sellers

The question then remains; what do you do about all this? Most importantly, speak with a professional Realtor and start a dialog about your needs, wants and concerns. Realtors know these trends better than anyone and can help you make good choices that’ll make sure you’re taking advantage of the market in a way that supports your unique goals. I hope you find this information useful and if you need more detail or clarification, please contact me. I’d be thrilled to help anytime!

Matt Titus, Realtor
Steve Allnutt Sales Group
Mobile: 443.445.0125
Direct: 240.295.0113
Fax: 240.295.0114
Email: MTitus@remax.net
Web: www.thinkforwardhomes.com

Winter 2015 Guide to Mortgage Rates

Mortgage rates are determined by the supply and demand for mortgage bonds in the bond market.

Why Mortgage Bonds?

When you get a mortgage in the US, your mortgage company is getting the money from Fannie Mae, Freddie Mac or other “securitizers”. These “securitizers” get their money by issuing bonds to bond market investors. These bonds are called “mortgage bonds” or “mortgage backed securities”. Therefore, the mortgage rate you pay is really determined by the supply and demand for mortgage bonds in the bond market.

The Role of the Federal Reserve

As you can see from the chart, the Fed owned zero ($0) mortgage bonds prior to 2008. Once the financial crisis happened, the Fed decided to start buying mortgage bonds in order to drive interest rates down and stimulate the economy. This is called “quantitative easing” or “QE”, and we’ve had several rounds of QE so far.

Currently, the Fed owns a whopping $1.74 TRILLION in mortgage bonds!

The Fed has been the biggest buyer of mortgage bonds in recent years. This had the impact of holding interest rates down to artificially low levels. In fact, mortgage rates were in the 6.5% – 7% range back in 2006 – 2007 before the Fed started buying mortgage bonds. That’s over 2% higher than where mortgage rates are today. Interest rates could be impacted if the Fed issues statements about slowing down or stopping their purchase of mortgage bonds.

Here are Three Things that May Impact Mortgage Rates in the Coming Months

Jobs Report: bond investors and the Fed watch the jobs report and unemployment numbers very closely to determine if the economy is improving and whether they should buy, sell or hold mortgage bonds.
Inflation Report: bond investors and the Fed watch the inflation reports (CPI and PCE) to determine whether they should buy, sell or hold mortgage bonds.
Gross Domestic Product (GDP) Report: bond investors and the Fed follow the GDP numbers to determine if the economy is growing and whether they should buy, sell or hold mortgage bonds. (GDP measures the size of the economy and whether it’s growing, shrinking or stagnating.)

Conclusion: we anticipate continued volatility in mortgage rates over the next several months as bond investors and the Fed decipher the economic reports that we’ve outlined above. Please contact me for more info on which economic reports may impact mortgage rates this week.

Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com

https://www.apexhomeloans.com/scottshenton

(240) 268-3156
3204 Tower Oaks Blvd, Suite 400
Rockville, Maryland 20852

NMLS #2884 (www.nmlsconsumeraccess.org): Licensed as a Mortgage Lender and Broker by the Virginia State Corporation Commission, License #MC1278; Licensed in the District of Columbia as a Mortgage Lender and Broker by the DC DISB License # MLB2884; Licensed in Maryland as a Mortgage Lender and Broker by the DLLR, License #06-4989; Licensed in Delaware as a Mortgage Lender and Broker by the Office of the State Bank Commissioner, License # 011603.

How to Understand the Annual Percentage Rate (APR)

The federal government requires mortgage lenders to disclose the “annual percentage rate” (APR) whenever they advertise a loan program. But what is APR, and does it really matter to you?

Here’s the thing: APR lumps all your “finance charges” into your interest rate. As you can see from Figure 1, some of your closing costs are considered “finance charges”. APR is calculated by adding all these finance charges to the total interest that you’ll pay over the life of the mortgage, and then calculating an annual interest rate based on that total number.

Figure 1: APR Costs (Finance Charges) vs. Non-APR Costs

APR Closing Costs & Prepaid Items (Finance Charges)	Non-APR Closing Costs & Prepaid Items
Origination Charges and Points	Application Fees
Processing and Underwriting Fees	Appraisal Fees
Mortgage Insurance (monthly and upfront)	Credit Report Fees
Closing Agent Fees Retained by Mortgage Company, or Closing Fees in Excess of What You’d Be Charged if You Paid Cash	Title Fees & Title Insurance
Tax-related Service Fees	Pest or Flood Hazard Inspection Fees
Administrative and Wire Transfer Fees	Stamp and Transfer Taxes
Pre-paid Interest	Pre-paid Escrows for Taxes and Insurance

Here are three little-known facts about APR:

#1 – All Seller-Paid Points and Closing Costs Are Excluded from APR

This means that your APR will be lower of the seller is contributing funds toward your points and closing costs.

#2 – The APR on an Adjustable Rate Mortgage (ARM) Follows a Different Formula

When you have an ARM, the APR is calculated by looking at your “fully indexed rate”. This is the interest rate that you would pay if the loan adjusted today. For example, if you have a 5 or 7 year ARM, the APR on your loan is not calculated based on the rate you pay for the first 5 or 7 years of your loan. It’s based on what your interest rate would be in 5 or 7 years if the index remains the same as it is today. See Figure 2 for an example of a fully indexed rate.

#3 – The APR Does Not Take Into Account How Long You Will Keep the Mortgage

Most people only keep their mortgages for 5-7 years. Chances are that you’ll refinance or sell your home at some point before the loan ends in 15 or 30 years. Therefore, when you compare your mortgage options, it’s probably smarter for you to look at what your total costs will be over 5, 7 or even 10 years vs. focusing entirely on comparing the APR. Remember, APR is simply one measurement of the cost of your loan… and it may not be the most accurate measurement for your purposes.

As a Certified Mortgage Planning Specialist (CMPS®) I’d be happy to review your situation and help you compare your options. Contact me for more information!

The Gift Tax Myth: How to Navigate Around It

Many people aren’t aware of the fact that, in most situations, there really is no gift tax. Here’s why…

$14,000 Annual Exclusion

The federal government gives each of us an allowance to gift anybody $14,000 per year without incurring any gift tax. This $14,000/year replenishes every year, and it’s $14,000 per person. So, theoretically, I could gift every person that I know $14,000 today, and then another $14,000 next year and the year after, and there would be NO gift tax.

$5,340,000 Lifetime Exclusion

What most people don’t realize, is that there’s a second allowance of $5.34mm! In other words, let’s say that I want to give you $114,000. That’s $100,000 more than what I can give you out of my $14,000 annual bucket. That’s not a problem at all, because I also have the $5,340,000 bucket. The $5.34mm bucket is called my “Lifetime Exclusion.” If I use any of it during my lifetime, I simply reduce my estate tax exclusion by that amount.

So in our example, if I gift you $114,000, I would take $14,000 out of my annual bucket and $100,000 out of my lifetime bucket. My annual bucket replenishes each year. But my lifetime bucket does NOT replenish. In fact, I must reduce my lifetime bucket by $100,000, so now my lifetime exclusion is “only” $5.24mm instead of $5.34mm.

Now, if my estate is less than $5.24mm, this would not be a problem at all, because my heirs would have no estate tax anyhow. However, if my estate is more than $5.24mm, than my heirs would have to pay estate taxes on anything inherited above $5.24mm. In other words, the lifetime exclusion bucket is used for both gift and estate tax purposes. So every time I use it to not pay gift taxes, I’m also reducing my estate tax exclusion… that’s how and why the gift tax and the estate tax are related to one another.

No Relationship Required

You don’t have to be related to use either of these buckets. You can gift $14,000/year to a complete stranger and you would have no gift tax. You can also gift money to a complete stranger using your lifetime exclusion bucket, and you would have no gift tax.

$10,680,000 Total Exclusion for Married Couples

One thing to keep in mind about the lifetime exclusion bucket is that the amount changes each year. In 2013, the exclusion was $5,250,000. In 2014, the exclusion is $5,340,000. Also, keep in mind that I can “port” over my $5.34mm to my spouse if I’m married. So technically, a married couple could have a total joint exclusion of $10,680,000! Therefore, if you are married and your net worth is less than $10,680,000, there is absolutely no reason whatsoever for you to concern yourself with the gift tax. That’s because even if you gift your entire net worth during your lifetime, you would pay $0 in gift taxes and your heirs would pay $0 in estate taxes. That’s why the gift tax is really a non-issue for most people!

No Gift Tax to the Recipient

Now, everything we just talked about applies to the person GIVING the gift. What about the person RECEIVING the gift? Well, here’s some more good news: there is no tax to the gift recipient.

What Paperwork is Required?

If you’re using the $14,000 annual bucket, the gift doesn’t need to be reported to the IRS if you follow the proper procedures. However, if you’re using the $5,340,000 lifetime bucket, you would need to file a gift tax return with the IRS (even though no gift tax would be due). This is done to simply notify the IRS that you’re using part of your gift / estate tax exclusion.

Also, make sure the the checks are written from the specific individuals who are giving the gift. In other words, if mom is gifting you $14,000, and dad is also gifting you $14,000, you’ll need two separate checks: one from mom and one from dad. We might also have to “source” these funds from a mortgage underwriting standpoint. Please check with me before you do anything so that we can discuss the specific details of your situation and make sure this is all done properly. Contact me using the info below so we can get started!

PLEASE NOTE: THIS LETTER AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 559.

Four Reasons Why Homebuyers Should Consider Seller-Paid Points

“Seller-paid points” are where the seller pays points to reduce the interest rate on your mortgage. Consider a home where the list price is $300,000 and the seller is willing to accept a bottom line of $291,000. If the seller reduces the price by $9,000, you would be able to purchase the home for $291,000. Both you and the seller would be happy.

However, what if you purchase the home for $300,000 and ask the seller to contribute $9,000 toward your closing costs? The seller still walks away with his/her bottom line of $291,000. However, there are four extra benefits to you in this scenario:

#1 – Lower Interest Rate and Lower Monthly Payment

Your mortgage interest rate would likely be 0.5% – 0.75% lower if the seller pays 2 or 3 points on your behalf. This means that your monthly payment will likely be lower as well. This is true even though your mortgage balance would be slightly higher, and based on a $300,000 purchase price vs. $291,000 purchase price.

#2 – Less Interest Cost Over the Life of the Loan

Your total savings over the life of the loan is likely be significantly more with seller-paid points vs. a reduction in purchase price. In our example, if you purchase the home for $291,000, you would save $9,000 vs. the list price. However, if you purchase the home for $300,000, with $9,000 in seller-paid points, your total savings over 30 years would be approx. $27,000. This is three times as much impact for you!

#3 – Easier to Qualify for a Mortgage

Your interest rate, your APR, and your monthly payment would all be lower with seller-paid points vs. a reduction in purchase price. This means that your debt ratio would also be lower and it would likely be easier for you to qualify for financing.

#4 – Free Tax Deduction

If the seller pays points on your behalf, the IRS allows you take that amount as a tax deduction. In our example, if you pay $300,000 for the home with $9,000 in seller-paid points, you would receive a $9,000 tax deduction this year. On the other hand, if you pay $291,000 for the home, you would not receive any tax deduction for that $9,000 reduction in purchase price.

So there you have it! Let me know if you’d like for me to run some numbers and see if seller-paid points might make sense in your situation.

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