Loan points
One of the main factors in financing a home is exactly how to split the interest payments from the down payment – in general, the higher a down payment toward equity the lower your financing costs are since the principle amount of the loan is larger. A loan point is considered equal to 1% of the outstanding equity in the home, so paying a point on a loan would mean an additional 1% off the base amount that would be paid as a down payment toward equity. The decision on how to property split financing from equity is contingent upon your budget, financial situation, credit score and timing of the purchase.
Often times, banks will lower the relative amount
of the interest rate if you purchase more equity in your home, potentially
saving you thousands in financing costs over time. Many home owners find that the decision to pay down part of
the equity in their home can deliver impressive returns on their investment.
Your decision to split equity from financing costs also depends upon your long
run plans for the property – those who see themselves in the home for a long
time should aim to shift the financing equation in their favor by purchasing as
much equity as possible. You
should always evaluate your financial situation, including your investment
portfolio, home equity options and opportunity costs to identify where your
money is best spent. If you have funds tied up in low yield investments that
aren’t linked to a retirement account, you may be better off to shift those to
equity in your home. Making smart re-allocation decisions with your budget can
end up saving you substantially on your investment over time.
Factors to consider in purchasing equity points on your loan
One major factor to consider in determining your mortgage structure is the tax benefits associated with purchasing equity in your home. The IRS allows most principle equity in a home to be deductible against your income taxes during the year in which the purchase closes – this upfront tax benefit can help open up options for your investment portfolio. By contrast, financing your loan with limited equity across 15 or 30-years would limit the upfront tax benefits, depending on your financial picture. While a tax professional can help you to better understand the various options for taxation reasons, a real estate professional from Prime Source can help you understand the various paths to financing your home ownership.
A major factor in determining the proper structure
for your mortgage is the base price of the property itself. Make sure you understand the total costs
of home ownership, including down payment, ongoing maintenance, property taxes
and financing expenses over time.
Buying a home with an affordable base rate can lower both your tax and
financing costs, so make sure you fully understand the different financial
burdens involved in the process. We can work with you to identify
neighborhoods, properties and areas that are conducive to your budget, as well
as helping you with negotiations and long-term planning to keep your real
estate portfolio more affordable.
While entering into negotiations is about finding a compromise between
the asking price and your offer, you can also shift the burden of the closing
costs in your favor with proper representation. We are strong advocates for our
clients from the beginning to end of real estate transactions, helping you to
get favorable terms on your new home. Considering multiple properties and
options can help ensure you get the best opportunity to agree to a contract on
your own terms so you can enjoy your home with financial freedom.
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