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Mortgage companies generally offer a range of interest rates. These different rates can be obtained by buying points. Each point is equal to 1% of the loan amount. The lower the interest rate on the loan, the more points you will have to buy.
In order to figure out the best combination of interest rate and points, you need to determine two things: 1) how much you are willing to pay up front, and 2) how much you are willing to pay monthly. If you plan on keeping the loan for a long-time, it may make sense to buy more points in order to get a lower interest rate. However, if you have a shorter horizon in mind, then it might not make sense to buy any points.
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