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In refinancing, a mortgage company usually offers a range of
interest rates at different amounts of points. A point equals one percent of the
loan amount. For example, three points on a $100,000 mortgage loan would add
$3,000 to the refinancing charges.
Analzying various interest rates and associated points may save you
money. As a rule of thumb, each point adds about one-eighth to one-quarter of
one percent to the interest rate the mortgage company is offering.
Generally, the lower the interest rate on the loan, the more points
the lending institution will charge. Some companies offer refinancing with no
points, but generally charge higher interest rates.
To decide what combination of rate and points is best for you,
balance the amount you can pay up front with the amount you can pay monthly. The
less time that you keep the loan, the more expensive points become. If you plan
to stay in your house for a long time, then it may be worthwhile to pay
additional points to obtain a lower interest rate.
Some companies may 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 payments.
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