What’s the point of paying points? I’m not a huge fan of spending unnecessary money at the closing table when you can allocate those funds for additional investments! But many banks charge them. So let’s first define a “point”. A point is 1% of the loan amount. When it comes in the form of an Origination Fee, it is usually a bank fee. You will see this with a lot of the box banks as well as on most VA or down payment assistance loans. A Discount Point on the other hand is pre-paid interest used in order to buy down your rate. As an example, one point might lower your interest rate by .25%.
Whether or not you pay points should be more of a math problem then an emotional one. I always ask my clients two questions.. (1) how long do you plan on living in this home and (2) is this the best return you can make on your money.
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