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by
homes.com,
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article
is
meant
as
a
reference.
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contact
a
Concord
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mortgage
broker
for
the
most
knowledgable
information.
When
Should
You
Pay
Points
on
a
Loan?
When
it
comes
to
comparing
interest
rates
for
a
mortgage
loan,
homebuyers
often
have
the
option
of
choosing
a
loan
with
a
lower
interest
rate
by
paying
points.
Simply
put,
a
point
is
equal
to
1
percent
of
the
loan
amount.
For
example,
with
a
$100,000
loan,
one
point
equals
$1,000.
Points
are
usually
paid
out-of-pocket
by
the
buyer
at
closing.
Paying
points
may
seem
attractive,
because
a
lower
interest
rate
means
smaller
monthly
payments.
But
is
paying
points
always
a
good
idea?
The
answer
generally
depends
on
how
long
you
plan
to
stay
in
the
house.
Let's
look
at
an
example:
Bob
and
Betty
Smith
are
shopping
for
loan
rates
on
a
$150,000
home.
Their
bank
has
offered
them
a
30
year
loan
at
7.5
percent
with
no
points.
This
works
out
to
a
monthly
payment
of
$1,049.
However,
their
bank
has
also
offered
them
a
loan
at
7
percent
if
they
agree
to
pay
2
points
(or
$3,000).
At
this
lower
rate,
their
monthly
payment
drops
to
$998,
or
a
savings
of
$51
per
month.
By
dividing
the
amount
they
paid
for
the
points
($3,000)
by
the
monthly
savings
($51),
we
see
that
they
will
have
to
own
the
house
for
59
months
(or
just
under
5
years)
before
they
will
start
to
see
savings
as
a
result
of
paying
points.
If
Bob
and
Betty
plan
to
stay
in
the
house
for
many
years,
then
paying
points
could
make
good
sense.
But
if
they
see
themselves
moving
to
another
house
in
the
near
future,
they'd
be
better
off
paying
the
higher
interest
and
no
points.
(Note:
for
simplicity,
the
above
example
does
not
take
into
account
the
time
value
of
money,
which
would
slightly
lengthen
the
break-even
time.)
Can
you
deduct
points
on
your
income
taxes?
In
the
United
States,
one
side
benefit
of
paying
points
on
a
mortgage
loan
is
that
they
are
fully
tax
deductible
for
the
same
tax
year
as
your
closing.
However,
this
does
not
apply
to
points
paid
for
a
refinance
loan.
For
refinances,
the
IRS
requires
you
to
spread
out
the
deduction
over
the
life
of
the
loan.
For
example,
if
you
paid
$5,000
in
points
for
a
30-year
refinance
loan,
you
can
only
deduct
1/30
of
the
$5,000
each
year
for
30
years.
If
you
pay
off
the
loan
early,
though,
you
can
deduct
the
remaining
amount
that
tax
year.
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