Paying points (for a lower interest percentage) upfront on a mortgage can lower the total cost of the life of the loan. The points could be a few thousand dollars upfront. As an added bonus, points are tax deductible.

Add up the monthly payments plus the cost of the points equals the total cost in repaying the loan. Compare this amount to a loan that does not have points to see how much you can save by taking advantage of paying the points.

A point is generally equal to 1% of the loan amount. Buyer beware of paying off additional points if the interest rate reduction is not high enough (such as if it is only 1/8% interest rate reduction) because it may take you too many years to recover the upfront cost.

Categories: Finance

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