|
Should You Pay Points?
A point, which equals 1% of the total loan amount, is an
upfront fee that reduces your monthly interest rate and total
interest due over the life of a loan. This means that a one
point loan will always have a lower interest rate than a no
point loan. Paying points is in essence a trade off between
paying money now versus paying money later.
Deciding whether to pay points depends on how long you are
looking to keep the loan. We suggest paying points up front
if you plan on keeping the loan for at least four years to
ensure that you recoup the costs through lower monthly payments.
If you think that you might move within the next four years
or might want to refinance because the market rate is declining,
then you probably would be better off with a no point loan.
Lenders allow you to choose amongst a variety of rate and
point combinations for the same loan product. Therefore, when
comparing rates from different lenders, make sure you compare
the associated points and rate combinations of the offered
program. The published Annual Percentage Rate (APR) is a tool
used to compare different terms, offered rates, and points
among different lenders and programs.
|
