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Paying Down Points

Many home buyers who are taking out new home loan and buying a new home wonder whether they should be paying down points at closing. Paying down points at closing can affect how affordable your new home loan is. While many homebuyers consider paying down points to be un important, it can make a dramatic impact on the loan payments you make. A point refers to 1% of your total home loan. For example, if you are taking out a new home loan of $200,000, then one point is $2000, two points are $4000, and so on. Paying down points in this case means that at closing you pay down money in increments of $2000 dollars. The more money you spend paying down points, the less the overall home loan amount, and therefore the smaller the monthly payments. Paying down points can mean savings in interest and lower monthly bills. This can make owning a home more affordable -- provided, of course, that you can afford to be paying down points at closing. Paying down points means that you have to pay a few thousand dollars up front. On the other hand, it can save money down the line. It's important to do the math when it comes to paying down points. Homebuyers should first of all determine how long they plan to stay in the new home before taking out mortgage refinancing and before moving. This amount of time is when paying down points will mean savings. Next homebuyers will have to determine how much one point, two points, and so forth will save them over the course of this period. For example, if a homeowner decides to stay in a home for five years before mortgage refinancing or moving, and can afford to pay two points at closing, they have to determine how much they stand to save within those five years. If the savings are substantial -- for example $9,000 -- they may decide to start paying down points a closing order to save his money in the long term.



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