What are Points and why do I care?

Points are the closest thing to legalized bribery!   When applying for a mortgage to buy a house, you can pay the lender a fee to get a better interest rate.   The fee is called a point and is 1% of the amount you borrow.   You could pay one or many points.   The point costs you money upfront but the lower interest rate saves you money each month on your payment.   So, the trick is to calculate the breakeven point.   In other words, how long will it take you to recoup the upfront fee in monthly savings on your payment because of the lower interest rate.   Simply calculate the payment for two interest rates and find the difference, that’s your monthly savings.   Then divide the amount of the points by the monthly savings and the answer will be the number of months to breakeven.  Your decision on whether or not to pay points will depend primarily on how long you plan on living in the house.   Also, if you think you’re likely to refi in the near future, you might not want to pay the points.   Points are usually tax deductible on a home purchase but on a refi they may need to be deducted over several years.
Thanks for reading,
Joe