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Rates Versus Points

What is a Point?

A point is a fee equal to 1% of the loan amount. You may elect to pay points to obtain a lower interest rate.

What Does this Mean for You, the Borrower?

If you choose a program with points, you will be required to pay them at closing. This increases your overall out-of-pocket closing costs. You will however, benefit from a lower interest rate and lower monthly payments (of principal and interest) over the loan term. This is beneficial if you have the cash on hand and are planning to own the property for a long time.

Some Considerations When Looking at Rate/Point Combinations

You Will Benefit from Paying Points When:

  • You need a lower rate to qualify

  • You plan to keep the property for a long time

  • Someone else is willing to pay point cost (the seller or your company)

Paying Points is Less Advantageous When:

  • Cash reserves are low

  • You are planning on selling the property in a short period of time

  • You think that you might refinance within a short period of time