By paying points on your mortgage, you are paying money up front to get a lower interest rate on your loan. Each point is equal to one percent of the total loan amount and with each point that you pay your interest rate is lowered 1/8 or 1/4 of a percentage point, depending upon the loan you’re getting and your lender’s specific policies. You can either pay when you close on the loan or—in some cases—you can roll the cost of paying points into the loan. In essence, you’re pre-paying interest when you pay points. Keep in mind that paying points isn’t available in all situations and not all lenders allow you to pay points on every type of loan.
So the question is, should you pay points or not? The answer to that mainly depends on how long you’re planning on staying in your home and/or how long you’re planning on keeping that particular mortgage. Although other factors—such as whether or not you can afford to pay points or tax liabilities/gains—may play into your decision, the length of time you plan on being in your home and keeping your mortgage is usually the most important consideration.
As a general rule, if you’re not planning on staying in your home very long or if you’re planning to refinance your mortgage at some point early on in the life of the loan, paying points may not be the best route to take. To see if it makes financial sense for your situation, you’ll need to make a few calculations to find out where your break-even point is. In other words, you’ll need to factor in how long you need to stay in your home and/or keep your mortgage to realize a savings from paying points.
You should also bring your lender or broker into the loop when you're deciding on whether or not to pay points. Getting their expert advice on paying points is invaluable.
For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988. Licensed by the Commissioner of Banks - License No. MB2671