Discount points are a fee you pay at closing in exchange for a better interest rate. Deciding whether or not to pay this fee depends how much you will have to pay and what the potential savings are over the life of the mortgage. Here are tips to help you evaluate whether paying points is in your best interest. The main advantage of paying discount points if you plan on staying in your home for a long time is that you will recoup this expense by qualifying for a lower interest rate. If you plan on staying in your home for a short time, you will most likely not recoup your expenses from paying points. A point, also called a discount point, is a fee paid at closing in exchange for a better mortgage interest rate. One discount point is 1% of the loan amount. Paying one point typically reduces the interest rate by percent. In order to determine if paying points will benefit you, simply divide the amount you will pay by what your savings will be from the monthly mortgage payment. This will tell you the number of months it will take you to recoup the expense of paying discount points on your new mortgage. If you plan on staying in the home longer than it will take you to recoup the expense, paying points on the new mortgage could benefit you. You can learn more about your mortgage options, including common mistakes to avoid by registering for a free mortgage guidebook: Five Things You Need to Know Before Refinancing Your Mortgage. |
