Mortgage Refinancing Tips: Should You Pay Points to
get a Lower Interest Rate?
Home Mortgage Refinancing: Understanding Points
First of all, remember that there is a difference between
lenders’ origination fees, also called points, and discount
points, which you use to buy down your interest rate.
This article discusses the latter of the two. Besides
being a little confusing to the inexperienced mortgage
shopper, they can end up a point of contention between
borrower and lender. While it often makes sense for
a purchaser to pay points, those who refinance sometimes
get little or nothing out of it. However, a lender who
wants to make more money from your loan may encourage
you to pay discount points.
Points and Your Home Mortgage Refinancing Loan
A lender who puts points on a list of costs to refinance
your loan should also tell you how it will change your
loan. Some experts say that for every point you pay
at closing, you should get a certain percentage off
your interest rate. Keeping in mind that your refinance
points are tax deductible over the life of the loan,
not immediately, they can reduce the effectiveness of
your refinancing, especially considering that you are
already restarting your loan and the high interest-to-principal
ratio of your early payments.