When it comes to getting a mortgage, there are a lot of decisions to make. One of those decisions is whether or not to pay “points” to lower your interest rate. Points are essentially an upfront fee that you pay to the lender in order to get a lower interest rate over the life of your loan. But is it better to pay points or not?
The answer to this question really depends on your individual circumstances and financial goals. But here are a few things to consider as you make your decision.
How Much Can You Afford to Pay Upfront?
The first thing to consider is whether or not you have the funds available to pay points upfront. Points typically cost 1% of the loan amount, so on a $300,000 loan, one point would cost $3,000. That could be a significant chunk of change, especially if you’re already working with a tight budget.
Can You Benefit from a Lower Interest Rate?
The reason people pay points is to get a lower interest rate over the life of their loan. This can be a smart move if you plan to stay in your home for a long time. For example, if you’re getting a 30-year fixed-rate mortgage and plan to stay in your home for 10 years or more, paying points could result in significant savings over the long term.
However, if you’re not planning to stay in your home for very long, paying points might not be worth it. It can take several years to recoup the upfront cost of paying points, so if you’re planning to move in the next few years, you might not see much benefit.
What’s Your Credit Score?
Your credit score can also impact how much you might benefit from paying points. Generally speaking, the higher your credit score, the lower your interest rate will be. If you have a high credit score and are already getting a low interest rate, paying points might not make much of a difference.
On the other hand, if your credit score is lower and you’re already paying a higher interest rate, paying points could help you get a more manageable monthly payment and save money over the life of your loan.
Ultimately, whether or not to pay points on your mortgage is a personal decision that depends on a variety of factors. Consider your budget, your long-term plans, and your credit score to determine whether paying points is the right move for you. Talk to your lender for more information and guidance.