After weeks of talking to strangers and cruising the streets, a determined couple find a home they love in the area they want. When you shop for a mortgage, you're usually looking for the lowest interest rate available. But knowing the interest rate alone doesn't necessarily give you the true cost of your loan. Lenders often charge points for a loan.
Most lenders give borrowers a choice.
They can pay more points in exchange for a lower interest rate, or they can pay fewer points for a mortgage with a higher interest rate. Although there are exceptions, the standard for the lending industry is that for each additional one-eighth of a percent in interest rate you're willing to pay, you can decrease your loan origination fee by half a point. Often first-time buyers have plenty of income to qualify for the monthly payments, but they have difficulty coming up with enough cash for the down payment and closing costs. First-time buyers aren't the only borrowers who might benefit from paying no or low points. If you plan to keep the loan for a short period of time, you'll probably save money if you don't pay points.