If your credit is not considered excellent, you may not qualify for the best interest rates available at the time. If you are in this situation, you could always consider buying points on your loan to help with this. Here are a few things you should know before you go through with this.

What Are Points?

In the field of mortgages, points are something borrowers can purchase to get lower interest rates. A point usually costs 1% of your mortgage amount, which means that one point would cost $2,000 if your home loan was $200,000. When you purchase a point, you will get an interest rate decrease of 0.25%. If the rate you qualified for was 5%, buying one point would give you a rate of 4.75%.

You are free to buy as many points as you would like; however, you may need to pay cash up front. If you wanted to drop your rate by an entire percent, you would need to purchase 4 points, and that would cost $8,000 in this situation.

Are Points Always A Good Thing?

Points are always good if you plan on staying in your house for a very long time. If you are only planning on living in the house for a couple of years, it might not be worth investing your money in the points, because the amount you would save over those few years might not even come close to the amount you had to spend initially on the points.

The other thing to consider is that you might be able to refinance in just a couple of years and get a lower rate. For example, if your credit is not great right now but will be in two years, you may want to skip buying the points and wait for the two years. When you reach the two-year point, you could refinance. The only risk you take with this is that interest rates might go up during this two-year period. If this happens, you will not be able to refinance and get a lower interest rate, simply because lower interest rates are not available.

One of the best things you can do is talk to a mortgage lender about your situation. The lender can look over your credit report and your current financial state, and this could help you find the best type of loan and interest rate available for you. To learn more about this, talk to a lender, like Premium Mortgage Corp, to find out what you can do to get a great rate.