Can I buy mortgage points to lower my rate for a jumbo loan at Better Mortgage?
Yes, you can. If you have more than enough cash reserves for your jumbo loan to be approved, buying mortgage points can be an effective way to lower your monthly payments. When you buy a mortgage point, you’re effectively pre-paying some of your interest. 1 mortgage point equals 1% of your total loan amount. So on a $1M loan, one point would be $10,000.
There are 3 scenarios where it makes sense to pay for points on a jumbo loan:
When you anticipate your income will go down in the future—meaning that you wouldn’t be able to qualify for a similar mortgage.
Your tax rate this year is much higher than what you expect in future years. (Mortgage points are tax-deductible in the year you get the mortgage, so buying points is a way to lower your taxable income when your tax rate is high.)
It’s highly unlikely that you’ll move or refinance for a very long time. In other words, you intend to keep the jumbo loan for long enough to break even.
If you know you’ll either sell the property or refinance in the next 5 years, buying mortgage points will cost you more in the long run. In this scenario, taking a lender credit to cover some or all of your closing costs, may be a more effective way to save money.