I know that I can get a lower interest rate by paying points and fees. How long will it take me to recoup that money by having a lower interest rate?
Depending on the program it will usually take anywhere from five to eleven years before you are able to get the money that you paid for the loan back by having a lower rate. The typical loan will allow the interest rate to drop by a quarter of a percent per point that is paid to buy down the rate. On a $400,000 loan a borrower can expect to pay $8,000 to receive a rate that is just a half of a percent lower than could be obtained with a credit for all closing costs. If you should need to refinance or sell before that time is up, you will certainly lose money.
