Is it worth it to pay points in exchange for a lower interest rate?
Each point is equal to one percent of the loan. If you buy points at your closing you will lower your monthly payments but pay more at the closing.
To determine whether buying points is the right choice for you, it helps to compare the cost of the points paid to the savings you receive on your monthly payments. You can do this by dividing the total cost of the points by the savings in each monthly payment. For example, if you pay $2,000 to buy a point and your monthly savings with buying a point is $200, then divide $2,000 by $200. This comes out to 10 months of payments. By the 11th month, you have already recouped the price you paid for the point. If you plan to stay in your house for any length of time, then buying points might be a good option.
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