Use of mortgage points soared in 2022

Homebuyers in last year's high interest rate environment bought mortgage points in around half of all loans originated, according to a new Zillow analysis.

About 45% of conventional primary home borrowers purchased the discounts in 2022, well above pandemic-era and pre-pandemic activity, the real estate platform found in an analysis of Home Mortgage Disclosure Act data. Homeowners who signed cash-out refinances on their primary homes bought points at an even higher rate last year, 57.8%.

Borrowers opting for the discount pay an upfront fee, typically 1% of the loan amount, to buy down their loan's interest rate by 0.25%, saving them money in future mortgage payments.

"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," said Erika Kelly, loan officer at Zillow Home Loans, in a press release. "These options are good examples of why it is so important to work with a knowledgeable loan officer."

Before rates soared above 7% last year, homebuyers bought points in just 29.6% of conventional primary home loan transactions in 2021, a rate which trickled up from the 27.3% of buyers in 2019, according to Zillow. Homeowners in the cash-out refinance surge of 2021 and 2020 bought points 48.4% and 44.2% of the time, respectively. Wednesday's report didn't include similar data for 2023.

Borrowers were more likely to purchase the discounts for homes in middle and higher-priced tiers, although prospective buyers in all income and home price levels sought the discounts. Home prices, while still high, have grown at a much slower pace; Zillow puts the average home value today at $334,269.

A Black Knight report earlier this year also revealed homebuyers' overwhelming preference for permanent buydowns, with 57% of borrowers in January choosing the long-term discount versus the 3% opting for temporary buydowns, like 2/1 products.

Lenders last year introduced more temporary buydown products for borrowers as a balance against rising rates, which as of late April sat at 6.39%, up 5.11% from the same time last year, according to Fannie Mae.