Considering Buying a Home in St. Louis? Here’s What You Should Know About Mortgage Points

If you’re thinking about purchasing a home in St. Louis, you’re probably aware that mortgage rates are much higher now compared to the historically low rates of the last decade. While today’s 7% rates are slightly better than last year’s peaks, they’re still far from the 3% or 4% mortgages that were common a few years ago.

This has left many prospective homebuyers hesitant to jump into the market. However, some lenders are advertising rates as low as the high-4% range. How is this possible when average rates hover around 7%?

The answer lies in a little-known strategy called mortgage discount points.

What Are Mortgage Points, and How Do They Work?

When you see those “too-good-to-be-true” rates, they’re often tied to mortgage discount points. These are upfront fees you can pay at closing to “buy down” your interest rate. Essentially, you’re prepaying a portion of the interest on your loan in exchange for a lower monthly payment.

For example, instead of paying 7% on a 30-year fixed-rate mortgage, you might lock in a rate of 6% by paying a certain amount in points upfront.

Paying points can be a great way to secure a lower rate, but it’s important to understand the tradeoffs.

Why Mortgage Points Are Back in the Spotlight

The concept of mortgage points isn’t new. In fact, during the 1980s and 1990s, paying points was very common. Back then, mortgage rates soared to astronomical levels—like 18.45% in 1981! Even with these sky-high rates, borrowers typically paid an average of 2.3 points to secure their loans.

For context, paying 2.3 points on a $250,000 mortgage would cost you $5,750 upfront—just to lock in that rate.

Today, points have regained popularity as mortgage rates remain elevated. By paying points, buyers can access lower rates, which makes their monthly payments more manageable.

Are Low Rates with Points Legitimate?

You might wonder if these low-rate offers tied to points are legitimate. The short answer is yes—they’re entirely valid. Points are simply a form of prepaid interest, and they can be an effective tool for lowering your monthly payments.

Builders often use this strategy to entice buyers, offering “rate buydowns” that reduce your interest rate for a specified period or even for the life of the loan.

However, you should be cautious. The upfront cost can be significant, and whether it’s worth it depends on your financial goals and how long you plan to stay in the home.

Example: Does Paying Points Make Sense for You?

Let’s say you’re purchasing a $500,000 home, and you’re offered two options:

1. A rate of 5.75% with no points, or
2. A rate of 4.875% if you pay two points, which equals $10,000 upfront.

At 5.75%, your monthly payment would be $2,917.86. At 4.875%, it drops to $2,646.04—a savings of $272 per month.

While the savings are appealing, it would take about three years to “break even” on the upfront cost of $10,000. If you refinance or sell the home before then, you might not recoup the cost of the points.

Should You Pay Points on Your Mortgage?

If you’re buying a home in St. Louis and plan to stay long-term, paying points could be a smart move. A lower interest rate means significant savings over the life of the loan.

However, if you think rates might drop in the near future or you’re unsure how long you’ll stay in the home, it might be better to hold off.

At Carlson Mortgage, we specialize in helping St. Louis homebuyers navigate decisions like these. With personalized advice and competitive rates, we’ll work with you to find the mortgage that fits your goals.

The Bottom Line

Buying a home is one of the biggest financial decisions you’ll make, and understanding your mortgage options is key. Mortgage points can be a useful tool to lower your rate, but they’re not the right choice for everyone.

Ready to Secure Your Dream Home in St. Louis?

At Carlson Mortgage, we’re dedicated to helping St. Louis residents navigate the mortgage process and find the perfect loan for their needs. Our experienced mortgage brokers can help you find the perfect loan to fit your needs and budget and will help you make informed decisions about buying a home. Call or text us at (314) 329-7314 or fill out our loan application at www.carlsonstl.com/apply.ved for a purchase or a refinance mortgage, or if you have any general mortgage lending questions.