Black Knight: Significantly More Borrowers Are Paying Points at Closing


Black Knight Inc.’s Data & Analytics division has released its latest Mortgage Monitor Report, which finds that affordability remains a significant challenge in the market despite both home prices and interest rates having decreased from their peaks in 2022.

One manifestation of this affordability challenge is the increasing trend of borrowers buying down their first-lien interest rates by paying points up front.

“Based on our Optimal Blue rate lock data, we can see definite signs of a January uptick in purchase lending on lower rates and somewhat lower home prices,” says Black Knight Data & Analytics President Ben Graboske. “Indeed, locks on purchase mortgages soared 64 percent from the first through the fourth week in January. On the surface, it may seem the market has been stirred by a full point decline in interest rates and home prices coming off their peaks – but it’s not that simple.

“Yes, according to the Black Knight Home Price Index, December did see home values post their sixth consecutive monthly decline, and prices at the national level are now 5.3 percent off their June 2022 peaks,” he continues. “But affordability still has a stranglehold on much of the market, with the monthly mortgage payment on the average-priced home more than 40 percent higher than it was this time last year.”

All of these factors have led to a “greater reliance on permanent rate buydowns,” the company says. In the third week of January, 3% of purchase loans included a temporary buydown, and just over 2% involved a two-year temporary buydown.

In contrast, in the third week of the month, 57% of all borrowers who locked in rates paid at least a half point, 44% paid at least a full point, and nearly a quarter lowered their rates with buydowns of two points or more.

“If that seems high, consider that back in September and October of last year, as many as 71 percent of borrowers paid points, with 43 percent paying two or more points,” Graboske says. “Prior to the pandemic-era housing boom, borrowers in 2018-2020 paid 0.5 points with a corresponding cost of around $1,500 – as compared to $4,300 today and as high as $6,900 last fall.

“Purchase borrowers, who now make up 81 percent of new rate locks, paid an average of 1.16 points,” he adds. “For those looking to pull cash out of their homes, the cost was nearly twice that, with an average 2.06 points paid.”

More details from the Mortgage Monitor can be found here.

Notify of
Inline Feedbacks
View all comments