What are points, and when is it advisable to pay them or not?
Points are nothing other than up front money that is utilized by the consumer to buy their interest rate down. If an interest rate at no points is at 8%, one might be able to buy it down to 7.75% by paying one point. Every point that you pay is equivalent to 1% of the loan amount. So on a $100,000.00 loan, one point would cost $1,000.00, two points would cost $2,000.00, etc. The time that it is advisable to pay points is when you have a very strong opinion that you will be borrowing this money for an extended period of time. This is due to the fact that points, which are paid up front, can only be recuperated through time, via the savings that are received on a monthly basis as a result of the lower interest rate generated by paying the points. On a 30 year fixed rate mortgage, points typically take approximately 5 years to get back, therefore for the first 5 years that you are in that loan you are in the red, where getting yourself out of the red and into the black is the objective. E
