What are the advantages and dis-advantages of having points on a mortgage loan?

Question

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Answer 1

paying points will lower your interest rate, and money paid for points is tax deductible...the con is that 1 point is 1 percent of your financed amount...you have to pay this money at closing, therefore you need to have some funds available

Answer 2

Each point is the equivalent of 1% of your loan amount. If you are paying points to buy your rate down you should determine how long it will recover the amount paid in points to determine whether or not it is a viable option. To do so, deduct the payment (P&I) at the lower rate from the payment at the higher rate and then divide the total amount paid in points by that difference. That will give you the number of months it will take to recover the costs of the points paid. Unless this is your final home purchase, recovery should occur in 3 - 5 years. If you are going to be in the home less time than that, decide accordingly.

In addition, most lenders report points paid on a purchase on a 1099 which means you may be entitled to deduct them from your taxes on a Schedule A thereby reducing your taxable income and increasing your refund.

Answer 3

Paying for points will help to lower your interest rate.