Paying points may or may not make sense for a homebuyer depending on several different factors. First and foremost it is important to understand what a point is so you know whether or not paying points is even an option.
A point represents 1% of the loan amount, therefore, on a $100,000 loan a point is $1,000 and two points is $2,000, etc.
When deciding whether or not to pay points to reduce your interest rate it is important to consider the amount of money paying points will be. Other considerations are how long you plan to live in the home without selling it or refinancing.
Paying points is a decision you can make by using simple math. Figure out how much money per month you will save by paying points and reducing your interest rate. Then, determine approximately how many months you plan to live in that home or live there before refinancing.
Once you know how much money you are saving over that period of time you will want to see if paying points makes sense or not. If you will save $10,000 over the period and the points will cost you $3,000, then you know paying points is a good economic decision if you can afford the $3,000 at the time of Closing.
Paying points is often considered taboo, but paying points does make economic sense for a large number of homebuyers. You need to simply do some math to determine whether or not it makes sense for you to be paying points.
