More than half of Phoenix homebuyers purchased mortgage points to bring down their interest rates last year, according to a new analysis by Zillow.
Why it matters: A lower interest rate is one of few ways to make homeownership attainable for a first-time buyer or a middle-class household looking to upsize.
By the numbers: A point costs 1% of the total loan amount, and reduces your interest rate a quarter of a percent for the life of the loan.
- Depending on the loan amount and how many points you purchase, your monthly payment could drop more than $100.
- That can provide some immediate breathing room in your monthly budget and spell big savings in the long run.
Nationally, about 45% of mortgage borrowers purchased points last year.
- 52% of Phoenix buyers used points, reflecting the Valley’s growing home unaffordability, Zillow senior economist Nicole Bachaud tells us.
What they’re saying: “Points are really helping to unlock the ability to buy a home for a lot of folks,” she says.
Be smart: Instead of purchasing mortgage points themselves, many buyers are asking sellers to pitch in for a “2/1 buydown” during sale negotiations.
- This lowers the interest rate 2 whole percentage points the first year and 1 point the second year.
For example: On the median-priced home in Phoenix, this would equate to a savings of more than $500 a month the first year and $300 per month the second year.
- After that, the payment returns to the original rate. But many buyers are hoping interest rates will drop in the next two years so they can refinance after the buydown ends.
How it works: The cost to the buyer in this scenario is less than $10,000.
- If the seller were to lower the purchase price by $10,000, it would bring the monthly cost down by only about $70.
The bottom line: During this period of high interest rates, a 2/1 buydown almost always makes more sense for the buyer and the seller than just lowering the purchase price, Phoenix Realtors president Butch Leiber said.
