To pay points or not to pay points, that is the question. Before answering the question it is first important to understand what exactly points are. A point represents 1% of a home loan. For example, a $100,000 home loan would equate to each point being $1,000. A home loan of $150,000 would equate to each point being $1,500. This is important to understand.
Generally speaking you will be faced with the prospect of paying points at two critical junctures in the home buying process. The first time you may be faced with this decision is when you need to decide if you want to pay point(s) to lock-in your interest rate. You may pay a fraction of a point, one point or perhaps more than one point. When you are approved for a home loan you will be told an interest rate that you qualify for. That interest rate and your qualification will be for a specific period of time. It may be 30 days, 45 days, or 60 days, or any number of days in between.
Your loan officer may then tell you that you can lock-in your rate for a specified period of time. A failure to lock-in the interest rate may result in a higher interest rate when you close the loan if the closing date is after the...
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