Refinancing - How many points?

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How many "points" do you have to pay to the lender to obtain the loan?

When refinancing, lenders will offer a range of interest rates at different points. A point is equal to one percent of the loan amount. For example, 3 points on a $100,000 mortgage loan would add $3,000 to the refinancing charges.

Shopping for points as well as interest rates might save you money. As a rule of thumb, each point adds about 1/8 to 1/4 of 1% to the interest rate the lender is offering.

Generally, the lower the interest rate on the loan, the more points the lending institution will actually charge. Some lenders offer refinancing with zero points, but generally charge higher interest rates.

To decide what combination of rate and points is best for you, you must balance the amount you can pay up front with the subsequent amount you can pay monthly. The less time that you keep the loan, the more expensive the points become. If you plan to stay in your house for a long time, then it might be worthwhile to pay additional points to obtain a lower interest rate.

Some lenders might offer to finance the points so that you do not have to pay them up front. This means that the points will be added to your loan balance, and you will pay a finance charge on them. Although this may enable you to get the financing, it also will increase the amount of your monthly payment.