Paying
Points For A Lower Rate
In
refinancing, a mortgage company usually offers a range
of interest rates at different amounts of points. A point
equals one percent of the loan amount. For example, three
points on a $100,000 mortgage loan would add $3,000 to
the refinancing charges.
Analyzing
various interest rates and associated points may save
you money. As a rule of thumb, each point adds about one-eighth
to one-quarter of one percent to the interest rate the
mortgage company is offering.
Generally,
the lower the interest rate on the loan, the more points
the lending institution will charge. Some companies offer
refinancing with no points, but generally charge higher
interest rates.
To
decide what combination of rate and points is best for
you, balance the amount you can pay up front with the
amount you can pay monthly. The less time that you keep
the loan, the more expensive points become. If you plan
to stay in your house for a long time, then it may be
worthwhile to pay additional points to obtain a lower
interest rate.
Some
companies may offer to finance the points so that you
do not have to pay them up front. This means that the
points will be added to your loan balance, and you will
pay a finance charge on them. Although this may enable
you to get the financing, it also will increase the amount
of your monthly payments.
