Pros and Cons of Paying Points on a Mortgage Loan

Buying a home is a huge financial decision, one that can have an impact on your finances for years to come. One of the choices you’ll have to make when taking out a mortgage loan is whether or not to pay points. Points are basically a fee you pay to the lender at closing in exchange for a lower interest rate on your mortgage. In this blog post, we’ll break down the pros and cons of paying points on your mortgage to help you make an informed decision.

Pros:

The main advantage of paying points on your mortgage loan is that it lowers your interest rate. Lowering your interest rate ultimately leads to a lower monthly mortgage payment. Additionally, paying points may help you qualify for a larger mortgage by lowering your debt-to-income ratio. These lower payments and higher approval rates result in potential savings over the long term. Though the savings may initially seem small from paying points, compounded over time the savings can be thousands of dollars.

Cons:

One of the main disadvantages of paying points is that it increases your closing costs. This can increase your out-of-pocket expenses. Another disadvantage is that it may take 2 to 4 years or more to realize your savings. If you plan to sell your property, refinance, or pay off your mortgage within four years, it may not be worth the cost of paying points. Additionally, paying points can reduce the amount of money you have in the bank for a down payment.

Paying points on your mortgage loan can be a valuable tool for homebuyers, but you should carefully weigh the pros and cons before making a decision. If you plan to stay in your home for a long time, paying points could save you a significant amount of money over the course of your loan. However, if you plan to sell your property or refinance shortly after purchasing, paying points may not be the best option for you.