SHOULD I PAY POINTS ?

The best way to decide whether you should pay more or less points (or no points at all) is to perform a break-even analysis. This is done as follows:

1. Calculate the cost of the points. Example: 2 points on a $100,000 loan is $2,000.
2. Calculate the monthly savings on the loan as a result of obtaining a lower interest rate. Example: $50 per month
3. Divide the cost of the points by the monthly savings to come up with the number of months to break even.

In the above example, this number is 40 months. If you plan to keep the house for longer than the break-even number of months, then it makes sense to pay points; otherwise it does not.

If none of the above makes sense, use this simple rule of thumb:

• If you plan to stay in the house for less than 3 years, pay zero to 1 point.
• If you plan to stay in the house for more than 5 years, pay 1 to 3 points.
• If you plan to stay in the house for between 3 and 5 years, it does not make a significant difference whether you pay points or not.