Paying points when mortgage refinancing can save you money if you plan on keeping your home long enough to recoup the expense. Sometimes mortgage lenders charge points and do not lower your mortgage interest rate at all. Here are several tips to help you avoid wasting money on points that give you no benefit when mortgage refinancing.
Points, more specifically "discount points" are prepaid mortgage interest paid in exchange for lowering your mortgage interest rate. One point is one percent of your mortgage amount paid by you at closing and typically reduces your mortgage interest rate by .25 percent. Mortgage lenders frequent charge homeowners whatever they like and get away with it because very few homeowners actually read the fine print found in their loan contracts.
How can you tell if your mortgage company is being honest with you about the points you are paying$%: Ask your loan representative for various quotes with different point and mortgage rate combinations. For each :%$frac14; percent change in the mortgage interest rate you should only be required to pay one point. If you don't see the interest rate going down accordingly ask your loan representative to explain the fee.
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Deciding if paying points is beneficial to you is simple to calculate. Simply divide the amount you will pay by the amount you save on your monthly payment and you will have the number of months it will take to recoup your expense. Generally speaking, the longer you plan on keeping the mortgage, the more sense it makes to pay discount points at closing. You can learn more about your mortgage options, including expensive mistakes to avoid with a free mortgage refinancing video tutorial.