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Mortgage Points May Not Be Worth Buying

Not all lenders will offer just a 0.125% rate cut per point -- the bigger the rate cut per point, the less time it will take for the interest savings to surpass the savings from a bigger down payment. Consider asking the various lenders how much each mortgage point (also called a discount point) will lower the overall interest rate, and factoring that into your decision.

For instance, in the New York metropolitan area, Webster Bank (WBS) and Capital One (COF) offer the same interest rate of 5.25% on their 30-year, fixed-rate mortgages, but one might offer a larger rate cut per point than the other, according to BankingMyWay.com.

Wachovia (WB) Bank currently offers a 4.875% rate with 0.5 points, whereas HSBC (HBC) offers a 5% rate without points, BankingMyWay data shows.

Without taking into consideration the impact of closing costs on the cost of the loan, paying the points on the Wachovia offer is the better option if you plan on living in your home for five years or more.

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