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You have to understand the point when borrowing a mortgage By Justin Hunter

Signing on a mortgage continues to be one of the most defining yet stressful moments in a person’s life. A mortgage provides many home buyers the opportunity to own property that would otherwise not be feasible. On the other hand it can be filled with complicating fees that can add up to more than you expected if you do not have the necessary knowledge and are not careful.
When anyone enters a mortgage transaction, the first thing they become familiarized with is the term, “points.” Most people think they have a firm understanding of what points are but the article, “Deciphering Mortgage Points,” written by Ron Lieber and published in the December 23, 2006 edition of The Wall Street Journal, illustrates how very few people actually know how points can be beneficial or wasteful.
Pay more now to pay less later is a sound idea but in order to benefit from this agreement you need to fully understand the mortgage process and especially the point system.
“Lenders frequently let borrowers pay ‘points’ to lower the interest rate on their mortgage. Each point costs one percent of the mortgage amount, and you pay up front (or roll the points into the loan and pay over time). In return, the loan's interest rate drops permanently, often from one-eighth to one-quarter of a percentage point for every ‘point’ paid.”
Points were very popular in the 1970s and 1980s when interest rates were very high but as rates have been hovering around the low 6.0 percent range, the concept of borrowers pursuing points has slightly dropped off.
But many lenders still push the benefits of points on borrowers. While paying points may not be viewed as important now as say in the 1980’s when rates were in double digits, they can still be very beneficial if you use them correctly.
“Start with a basic question: How long do you think you will hold the loan? If you hold it long enough, the savings on the monthly payments from the lower interest rate will more than cover the cost of the points. Most of the time, it takes years to get there.”
“Doing the math involves other issues, too, such as whether you intend to invest any savings, like the money not spent on points. Plus, there are tax breaks for points buyers.”
You may want to use the LEI mortgage calculator or contact an LEI mortgage coach to provide you a more precise estimation of how much points will really cost or save you, but in the meantime you can rationalize your situation from the following example.
Say you are looking to borrow a $500,000 mortgage that has a 6.25 percent interest rate with no points or a 6.0 percent interest rate with one point. “You would have to keep that loan for 57 months to break even on the points (assuming you are in the 33% tax bracket and your savings earn 7%).”
Penn State financial professor Abdullah Yavas and one of his graduate students, Yan Chang, who is now a senior economist at Freddie Mac, tracked 3,785 fixed-rate mortgages between 1996 and 2003.
“The pair found that just 1.4% of borrowers held their mortgages long enough to break even on the points they paid. The rest paid off their loans more than three years, on average, before they would have hit that break-even point.”
If you plan on staying in your home or mortgage for over 10 years, paying pints may be every beneficial and save thousands of dollars.
However, no one can predict the future and while interest rates are low know, paying several thousand dollars in points may not be a wise decision, especially if you decide or have to move in the near future.

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