BAM Key Details:

  • A recent Zillow analysis of data from the Home Mortgage Disclosure Act (HMDA) shows nearly 45% of primary home buyers with conventional loans opted to purchase mortgage points in 2022 to reduce their monthly payments—about 15% more than in 2021.

New research from Zillow Home Loans shows 15% more home buyers purchasing mortgage points in 2022 to reduce their monthly payments. 

As mortgage rates hover around 6.5%, more borrowers are looking for ways to save money on their monthly housing costs. Purchasing mortgage points is one way to do that. 

A recent Zillow analysis of data from the Home Mortgage Disclosure Act (HMDA) shows nearly 45% of primary home borrowers with conventional loans chose to purchase mortgage points in 2022. That’s well above the figures for 2019-2021, when mortgage rates were historically low: 

  • 27.3% in 2019
  • 28.4% in 2020
  • 29.6% in 2021

Also, borrowers opting for a cash-out refinance loan (on a conventional mortgage for a primary home) purchased even more points, with 57.8% of them taking that option—up from 48.4% in 2021, 44.2% in 2020 and 41.3% in 2019. 

Purchasing Mortgage Points

Also known as “discount points,” mortgage points allow buyers to pay an upfront fee—typically a percentage of their loan amount—to buy down the interest rate on a loan, reducing their monthly payment

The term “points,” in this case, refers to a percentage of the borrower’s loan amount. So, when a buyer chooses to purchase mortgage discount points, they’re actually pre-paying interest up front in exchange for a reduced mortgage rate and monthly payment. 

While buying mortgage points is more common now than it used to be (thanks mainly to higher mortgage rates), borrowers who make less than the median income for their area—between 30% and 50%—are most likely to take advantage of this option as they’re most likely to be concerned about their monthly payments. 

Those whose income is 30% below their area’s median income bought the most mortgage points overall for properties in the bottom price tier. 

Looking away from income levels, buyers of homes in the top and middle price tiers were most likely to purchase mortgage points, probably because the impact of lowering the mortgage rate is greater with more expensive home loans.

Discussing this option with your clients

When presenting this option to your clients, encourage them to use a break-even calculator to determine how much they would save by purchasing a certain number of points—or by accepting a seller’s 2/1 buy-down

Banks don’t hand out mortgage points for free, after all, and buyers need to get clear on whether paying upfront to reduce their monthly payments is worth it. 

Generally, buyers can expect to pay 1% of the loan amount to cut their mortgage rate by 0.25%. 

Buying points can be a great option to improve monthly affordability — there are many different mortgage products, including buying points and the 2/1 buydown buyers can explore. These options are good examples of why it is so important to work with a knowledgeable loan officer. The loan officer should be a partner in the buying process, helping explain options so buyers can make an educated decision.

Erika Kerry

Loan officer at Zillow Home Loans

Affordability and (pent-up) buyer demand

Affordability is still a major concern for homebuyers in 2022. According to a recent Zillow analysis, home values nationwide are roughly 25% higher than where they need to be for affordability to return to historical norms. 

That said, buyers still want to buy homes. And those who can afford to in today’s market should at least find less competition compared to the pandemic buying frenzy. That means they’re more likely to have an offer accepted on a home that meets their needs. 

That’s good news for buyers who can’t pay in all cash or make a large down payment — especially since the majority of U.S. homeowners stick with the same home for about 15 years. 

Top takeaways for real estate agents

Depending on the clients you serve most often, you might be discussing mortgage points for buyers with below-median income—to attain homeownership when it might otherwise remain out of reach. 

Or you might be helping clients who are looking at the monthly payment on a home priced at the middle- or top-tier and wondering if it makes more sense to wait until rates reach 6% or lower. 

Help them see, as clearly as possible, the costs they face in the near and far term, depending on the choice they make, so they can choose confidently.