If you are considering a new home loan, you may have the option to lower the interest rate you receive by paying mortgage points.
Mortgage points, which sometimes are referred to as discount points, are a fee that you pay at the time you close the loan in exchange for a lower interest rate. Typically, a point costs you 1% of the total amount of your loan. And in exchange, you can receive a reduction of approximately 0.25% on your interest rate.
But is paying points a good idea? It likely depends on the length of time you plan to stay in the home. Money expert Clark Howard advises against paying points unless you’re very confident that you’ll own the home for a long period of time. You can read more about his strategy and the nuances of mortgage points here.
Team Clark’s Mortgage Points Calculator is designed to help you make this decision. Simply input two loan options (starting with the loan with the lowest amount of points, if applicable) and our tool will break down how much money you could save on your payment and how long it will take you to recoup the upfront costs of buying the points.