Do the Math on Mortgage Points

When you take out a new mortgage, the lender may offer to reduce your interest rate if you are willing to put up cash to buy "points."

Should you take the lender up on that offer?

The decision to pay points at the start of your mortgage depends largely on how big an interest rate reduction you will receive, and how long you plan to stay in your new home. In some cases, it might make more sense for you to use any spare cash to increase your down payment.

Each mortgage point (also called a discount point) represents 1% of your overall loan. Paying a single point typically lowers your interest rate by 0.125%, although points sometimes can buy you a larger rate cut. ...