4 responses to “is it better to pay points on a loan to bring down the interest rate or pay 0 points with a higher rate?”

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  katwalker September 24th, 2009 at 00:06

  Alma

  That depends on how long you plan to pay on the loan.The longer the loan the lower you want the rate.

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  LilMissMustang66 September 25th, 2009 at 22:39

  Nathaniel

  If you are in a situation where you are able to pay points, do it.

  I can’t imagine anything more desirable than the lowest interest rate possible.

  I think it boils down to an issue of cash on hand and paying more now and less overall, or less now and more in the long run.

  But, as you’ve said this is investment property, if it’s a property you are just going to flip quickly, then it may not be worthwhile to bother paying the points down when you aren’t going to be the one making payments on the loan for very long.

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  nicknack September 26th, 2009 at 09:11

  Clifford

  It depends. When I bought my place I paid .75 of a point (cost me $1800). It really depends on how much your monthly payments ar cut back. I think in the long run paying points can actually save you money but you don’t get to invest that money anywhere (i.e putting back in your house). The money goes to the bank and thats it. You might want to run some numbers to see what saves you more money.

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  Real Estate Guy September 27th, 2009 at 16:59

  Joseph

  the rule of thumb is for each point (1% of the loan amount) you pay up front, you lower the interest rate 1/8%. This means that on a 100k loan, if you paid 1k up front to lower the rate 1/8%, you would lower your payments by $10.42 a month.

  The break even is 96 months or 8 years. In other words, if you are in the house for less then 8 years, don’t take the point. If it’s over 8 years, then the point was a good deal.

  However, if you can lower the rate for more then 1/8% for each point, then the break even time is less. For example. Current rate is 6% with no points, but you can get 5 3/4 for 1 point, then the break even is only 4 years. A better deal.