15% more borrowers purchased mortgage points
in 2022 than 2021, and continue to do so as interest rates hover
around 6%
SEATTLE, April 26,
2023 /PRNewswire/ -- Interest rates remain high
and home buyers are looking for ways to save money, including
buying mortgage points. A recent analysis of data from the Home
Mortgage Disclosure Act (HMDA) by Zillow
Home Loans finds nearly 45% of conventional primary home
borrowers opted to purchase mortgage points in 2022 as a way to
reduce their monthly payment. The historically low interest rates
of 2019–2021 saw far fewer buyers opting for points — 29.6% in
2021, 28.4% in 2020 and 27.3% in 2019. And borrowers who
opted for a cash-out refinance loan (on a conventional loan for a
primary home) bought even more points in 2022 — 57.8% of these
borrowers purchased points (compared with 48.4% in 2021, 44.2% in
2020 and 41.3 in 2019).
Mortgage points, also known as discount points, are an option
for buyers to pay an upfront fee to buy down the interest rate on a
loan. The term "points" is a common way of referring to a
percentage of your loan amount. When buyers choose to purchase
mortgage discount points, they are essentially pre-paying interest
up front in exchange for a lower rate and monthly payment.
While buying points is more common now, it's most often used by
borrowers who make less than their area's median
income (between 30% and 50% of their area's median income) and
are most concerned about monthly payments. Those who make less than
30% of an area's median income purchased the most points overall
for homes in the bottom price tier.
Regardless of income level, borrowers were more likely to
purchase points for homes in the top and middle price tiers, than
for homes in the bottom price tier. This could be because the
impact of lowering interest rates is greater on more expensive
mortgages.
Reducing interest rates doesn't come for free, and buyers need
to determine if paying up front to reduce the fee in favor of lower
monthly payments is worth it. Generally, mortgage applicants need
to pay 1% of the loan amount to cut the interest rate by
0.25%. A break-even calculator can help buyers determine if
paying more now to buy points could save them money in the long
run.
"Buying points can be a great option to improve monthly
affordability — there are many different mortgage products,
including buying points and the 2/1 buydown buyers can explore,"
said Erika Kerry, loan officer
at Zillow Home Loans. "These options are good examples of why
it is so important to work with a knowledgeable loan officer. The
loan officer should be a partner in the buying process, helping
explain options so buyers can make an educated decision."
Affordability remains a top concern for home shoppers. A recent
Zillow analysis found that nationally, home values are about
25% above where they would need to be for affordability to return
to historical norms. These challenges should not be confused
with a lack of desire to purchase a home. For those who can afford
to buy now, they should find less competition than the buying
frenzy of years past. This means buyers are more likely to get into
the right house, as opposed to the only house they can find, which
is important considering the majority of homeowners are in their
home for about 15 years.
About Zillow Group
Zillow Group,
Inc. (NASDAQ: Z and ZG)
is reimagining real estate to make it easier to unlock
life's next chapter. As the most visited real estate website in
the United States,
Zillow® and its affiliates offer customers an on-demand
experience for selling, buying, renting, or financing with
transparency and ease.
Zillow Group's affiliates and subsidiaries include Zillow®;
Zillow Premier Agent®; Zillow Home Loans™; Zillow Closing
Services™; Trulia®; Out East®; StreetEasy®; HotPads®; and
ShowingTime+™, which houses ShowingTime®, Bridge Interactive®, and
dotloop®. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS
#10287 (www.nmlsconsumeraccess.org).
(ZFIN)
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SOURCE Zillow Home Loans