Should You Pay Points to Refinance?

Posted by  on Aug 11, 2010

Refinance rates are so low that you may be thinking of applying for a loan. But how can you find the lowest mortgage rates possible? Paying points is one way you can lower the amount of interest you pay when refinancing a mortgage. Keep the following things in mind when deciding whether it makes sense to pay points.

What Is a Point?

A point is equal to 1% of the amount you borrow. For each point you pay, the mortgage interest rate may be lowered by .125% to .25%. When you compare mortgage rates make sure you understand whether any points are involved. Sometimes when you see refinance rates that are much lower than competitors, points are involved. Run the numbers on various scenarios with and without points.

How Long Do You Plan to Remain in Your Home?

Generally, the longer you plan to live in a house, the more it makes sense to pay points to lower the mortgage rate. Not only can you lower the monthly payment, but less interest gets paid out over time.

Paying for Points

When you borrow with a mortgage that involves points, you need to come up with cash at closing. Some mortgage lenders may allow you to include the cost of points in your mortgage. But keep in mind that financing points is going to add to your monthly payments and total interest paid over the life of the loan. It's best to come up with the cash to pay points if you can.

Use the mortgage refinance calculator to determine how much your monthly payments would be with and without paying points.


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