When getting a mortgage, the general rule of thumb is that you don't want to pay any points. This is not always true, as is the case with most assumptions.
You can lower your interest rate by using points.
It's important to know what points are when you talk about mortgages. Points are a type of up-front payment that you make to a lender in exchange for the loan. The fewer points you have to pay, if any, the better your credit score, salary, and down payment amount are. Having said that, there are times when you may want to ask for points.
In mortgages, points and interest rates work together in a unique way. In general, the less you pay in interest, the more points you pay. This is not always the case when someone has bad credit, but most bowers know it to be true. You can get something good out of this connection.
No matter how many points you pay on a loan, the cost will never come close to the amount of interest you pay over the life of the loan. If you plan to stay in the house for a long time, you should do everything you can to get your interest rate as low as possible. Most of your money will be saved here. Here's where points also come in.
If you have a lot of cash when you buy the house, you can pay the lender a lot of points to get a lower interest rate. The key is to ask the lender how much the interest rate will go down for each point paid. You want this on paper, right? Once you have it, use a mortgage calculator to see how much money the different lower interest rates will save you over time. Check how much your monthly payment goes down as well. Once you have the numbers, you can compare them to the total cost of paying more points and decide what to do.
Points are not the bad part of the mortgage industry, despite what people think and what marketing ads say. If you use them wisely, you can save hundreds of thousands of dollars over the life of a loan.
