Credit Help Forums

ferby03 · #1 08-06-2006, 03:08 AM

My husband and I are buying a new house. The place we are buying from got us a "discount" on our interest rate. They negotiated the rate down 2 points with the lender. But, we have to pay an extra $6,000 on our loan for that. If the rate had been higher, we would have paid a lot more in interest over the long term. Has anyone ever heard of this?

Melos · #2 08-06-2006, 09:35 AM

Is this having to pay $6,000 more on the down payment? Or the entire amount over the life of the loan. I have heard you get a better rate the larger the down payment is, but I don't see how the lender would want to trade all that interest for a smaller amount. Maybe you got lucky!

Lyricb · #3 08-06-2006, 07:31 PM

Sounds like you're purchasing what mortgage lenders call "points." That's where you pay a fee to get your interest rate down. It makes sense in some instances, but don't finance the points because then it's just silly.

P.S. Points are sometimes tax-deductable, so you may want to check into that.

ferby03 · #4 08-09-2006, 06:25 AM

Yes, I believe our points are tax deductible.

Just after I posted this, I read something in the paper about it. They call this a "discount" that is added into the closing costs. (Funny, I always thought that discounts lowered your price, not added to it!) You are buying down the interest rate, so that your rate is not as high. It is not the same as giving a larger down payment. Even with a larger down payment we would not have gotten a lower interest rate.

r8rpwr · #5 08-12-2006, 06:29 AM

Well, this "discount" doesn't lower the actual price, but it does lower the interest rate, which is part of the total that you pay.

You just really have to crunch the numbers to see if you are better off. Generally if you are not staying in the house very long, this will not make as much sense.

Points are indeed tax-deductible on a home purchase, but be aware that if you are doing a refinance, they must be amortized over the life of the loan. In that case they may not all be deducted at once.

feline · #6 08-12-2006, 07:23 AM

Quote:

Originally Posted by r8rpwr

Well, this "discount" doesn't lower the actual price, but it does lower the interest rate, which is part of the total that you pay.

You just really have to crunch the numbers to see if you are better off. Generally if you are not staying in the house very long, this will not make as much sense.

Points are indeed tax-deductible on a home purchase, but be aware that if you are doing a refinance, they must be amortized over the life of the loan. In that case they may not all be deducted at once.

I guess this is the catch somewhere coz if the amount is amortized over the life of the loan. Would you think that there will be an additional interest as the amortization is now higher?

muslgrl · #7 08-12-2006, 09:08 AM

Sounds strange to me I myself have never heard of that. Intrest is tax deductale. I know i just refinanced at a higher rate beacause my intrest rate was so low I still had to pay in to the IRS every year. Upon calculating it out is is cheaper for me this way and i reduced my mortgage by 10 years

ferby03 · #8 08-13-2006, 02:28 AM

My SIL always deducts her interest among other things, but I noticed when doing her taxes last year that they barely made it over the standard deduction. Only by about $1500. Since you routinely pay less and less interest every year, the amount you can deduct goes down. I never thought about refinancing at a higher rate, but I'll mention it to her to see if it would save her any money. Otherwise, this year or next they will probably have to take the standard deduction because they won't have enough to itemize.

r8rpwr · #9 08-14-2006, 06:03 PM

Quote:

Originally Posted by feline

I guess this is the catch somewhere coz if the amount is amortized over the life of the loan. Would you think that there will be an additional interest as the amortization is now higher?

I am not sure I understand your question; can you clarify?

muslgrl, are you saying you have never heard of interest on a refinance being required to be amortized rather than deducted all at once? I'm not surprised; it's rather often that I run into people who are not familiar with this concept, but that is the law.

muslgrl · #10 08-15-2006, 05:11 AM

You are correct i have never heard of that