Northlawn Financial, Inc.

 

"Buying points" when you close your mortgage is a way to reduce the interest rate, which in turn reduces your monthly payment. But each "point" will cost you 1% of your mortgage balance. Points are often looked upon as "prepaid interest," hence the potential tax deductibility. If you pay points, you're paying your lender some of the interest up-front, in a single fee, in exchange for a lower rate. There is no symbiotic relationship between rates and points, but generally speaking, for each point you can drop your rate by 1/8%. Paying two points will drop your rate by a quarter percent, and so on. A lot of the decision rides on how long you anticipate keeping the mortgage in question, either by selling the property or refinancing. If you in fact don't anticipate keeping the house for a long time, then paying additional points may not make much sense.

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