PAYING POINTS FOR A LOWER RATE
In refinancing, a mortgage company usually offers a range of interest rates at different amounts of points. A point equals one percent of the loan amount. For example, three points on a $100,000 mortgage loan would add $3,000 to the refinancing charges.

The Points which you pay to reduce the interest rate are called discount points.

The most common buydown is a 2/1.

These charges are also sometimes referred to as "buy-down points."

Points are tax deductable over the life of the loan. And, if the home is sold, the remaining deduction can be takin in the last year of the loan.

Buying down your interest rate by paying points to the lender requires some analysis and forethought on your mortgage needs. If you plan on keeping your mortgage for 5 years or more and your interest rate is your most important considersation, it may make sense to buy down your rate, however, if you are unsure how long you will keep your new mortgage, it probably makes sense not to buy down the rate. Ask your mortgage broker to run a cost comparison of closing cost and payments with and without paying points and see which best fits your needs.

 

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