After all, a mortgage is typically the largest financial transaction people make in their lifetime. It is far more costly to get the best rate on the wrong product that it is to get a competitive rate on the right program for you. So you re in the market for a mortgage. After hearing about all the options and products, your head is probably spinning. If that weren t enough, after you pick your mortgage you then have to decide whether to pay points, and how many.
Points are prepaid interest.
One point equals one percent of the mortgage amount. People are often tempted to pay points because it will reduce their interest rate. If it saves you money in the long run, then it must be good. But in the real world, it usually doesn t work out that way. Your lender offers 8 percent with no points, or 7.75 percent with one point, or 7.50 percent with two points, and so on.