With interest rates on the rise, paying points has become more common for borrowers who need to get the lowest payment possible.

Paying points makes sense when you're going to be in your loan for four or more years. The strategy is to stay in your loan longer than your break-even point.

Many uneducated borrowers will mistakingly believe that points are a bad thing that should be avoided. Often, this myth is perpetuated when these borrowers warn their family, friends, and coworkers to 'stay away' from paying points. The fact is, paying points can be a very smart financial decision. It will allow you to 'buy down' your interest rate, which will lower your monthly payments. By paying more up front, you will save money each month.

Whether you pay points to us directly or not, we're still going to make money. Nobody in this business works for free, of course. If it's a priority to you to not pay points, what we have to do is charge you a higher interest rate than what you actually qualify for and get our money from the bank. The thing is, if you plan to stay in the home for quite a few years, instead of paying the $3,000-$5,000 up front in points, you're going to pay $15,000-$20,000 more in INTEREST over the life of the loan. Make sure to ask a mortgage professional what your "break even" point is. This will be the point of time in years in which it will cost you MORE to have the 0 point loan. If you plan to stay in the house longer than that, it's better to pay the points up front.

 

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