Should I Pay Mortgage Points For A Lower Interest Rate?
When you apply for a mortgage you are often presented with a choice, should you:
- buy down the interest rate by paying more money at closing, in other words, pay discount points, or
- not spend this money up front and accept a mortgage with a higher interest rate?
Use this mortgage calculator to determine whether you should pay discount points and, if so, what is the best combination of points and interest rate for you.
Example: Pay Mortgage Points or No Points?
- Credit Card
- The total of the minimum monthly payments you are required to make on your credit cards. You should not include credit card balances that you pay off in full every month.
- Discretionary Income
- The amount of money left over from your income after you pay your current taxes, and essential expenses necessary to maintain a reasonable standard of living, such as your food, mortgage, rent, utilities, insurance, clothing, transportation, maintenance, child support and sundries.
- Emergency Savings
- Money you can use to pay for your expenses if you have an unexpected loss of income and/or increased expenses. Savings that covers 6-12 months expenses is a good start.
- Home Value
- The current market value of your home. At the time you buy a home this is often the purchase price of your home.
- Loan Amount
- The initial principal balance or your mortgage at closing.