Thinking Points

Thinking Points!  What goes up, must come down!  The reverse is true as well.  Remember the Covid-19 years?  Mortgage rates hit all-time lows and stayed that way longer than they should have.  This created the need to raise rates rapidly to cool down the economy.  It should have never come to that, but it seems no matter who is in charge of the Federal Reserve, they all seem to make the same mistake of never anticipating an end to a cycle…therefore, low rates for too long and then high rates for too long!  The cycle we are in now, high rates, will most likely continue until well past the obvious signs that the economy has slowed down, if history has anything to say about it.  Sooooo, here is my suggestion.  If you are purchasing, and can afford it, buydown the interest rate with discount points.  A one percent discount point will, in almost all cases, drop your mortgage rate by 1/4 percent.  Usually it takes around five years to make that back in the form of lower payments verses the money output of the discount point.  For example:  a $500,000 loan on a $625,000 primary residence property purchase today would be 7.25% for a 30 year fixed rate at zero points.  If you were to pay one discount point ($5,000.00) then your mortgage rate would drop to 7.00%.  The difference is $84.78.  That means after approximately 59 months (just under five years) you will have made that discount point back.  Also, make sure you tell your tax-preparer because you most likely will receive a deduction for paying any points on a mortgage purchase loan!  Mortgage rates change daily and sometimes several times a day.  This could also benefit you if you happen to hit a day when the spread in interest rate for that discount point is larger than normal.  That means your one discount point will get you 3/8’s lower interest rate!  In those cases, you will make that discount point back, in the above scenario, in around 39 months with the same tax advantage!  If rates come down after you have purchased your home, then hallelujah, you can refinance to a lower rate.  This is a lot to take in if you don’t do it everyday, so that’s where Mitchell Mortgage comes in to help guide you.  Call Michael E. Mitchell at 530-406-2200 or 707-337-5970 cell, and we will get you in that new home with financing that works for your pocketbook!