Learn about the break even period for mortgage points Finding out what you need to know from your mortgage lender can be a tedious task, they have learned how to doge questions like the pros that they are. They will talk around you like nothing you have ever heard before, by the time they are finished you will not even know if you questions have been answered yet. In fact many lenders can be downright misleading in the answers that they give you. That is why it is so important for you to do your own homework. Learn about how mortgages and their rates and points are calculated so that you can do your own math. This will help to keep you from falling for the ploys of the mortgage lenders. The way that the lenders calculate your payments and your interest is something that you need to watch because this is how you are going to be able to tell if you are getting a good mortgage or not. You are going to have to calculate the costs and how the payments are made for each type of loan that you are considering if you want to find the break even period. The time value of money will also have to be taken into consideration when you are planning your mortgage. You cannot afford to ignore the taxes on your mortgage either. You need to understand how your points can be deducted from your taxes in the first year and how your interest payments can be each year. Understanding your taxes will not only save you money, it will also bring you peace of mind. Your break even period is the time in which it will take you to get to the same point you would with another mortgage plan. There are many factors to take into consideration such as your points, your interest rate, your monthly payment and your interest earnings and your tax savings just to name a few. It is complicated and it is something that you need to talk to your mortgage lender about. Ask them about all of the finer details, you need then in order to make the right decision for you and your family. You might find that most lenders will not have the capacity to do these calculations properly.  If you want to pay a lower interest rate on your mortgage you will want to look for higher points and when you pay less points the opposite will be true, your rate will be higher. You could take your extra money that you could save on points and invest that in other things. This could bring you more money. The table below shows how different interest rates and points are often shown.  This example is also for a $100,000 loan amount.  To get a loan with a rate of 7.25%, the borrower would not pay any points; however, to get a rate of 6.75%, 1.75 points ($1750) would be required. Rate Points APR Monthly 6.500% 2.750% 6.928% $632 6.625% 2.250% 7.005% $640 6.750% 1.750% 7.081% $649 6.875% 1.125% 7.144% $657 7.000% 0.750% 7.232% $665 7.125% 0.375% 7.320% $674 7.250% 0.000% 7.408% $682 Break Even Analysis When considering whether or not to pay points on your mortgage, use a Break Even Analysis.  By paying points and obtaining a lower rate, you will have a lower payment.  This analysis will help you decide whether the monthly savings is worth the cost of the points. In the same example above, a $100,000 loan at 7.25% for 30 years has a monthly payment of $682.  If you pay 1.75 points ($1750), your rate would be 6.75% and your monthly payment would be $649.  This represents a monthly savings of $33.  So you would have paid $1750 at closing to save the $33 per month.  It would take just over 53 months (4 ½ years) to recoup your investment or "break even". The vital question to ask yourself is if you will be in the home that long. If so, it may make sense, if not, it is a bad investment Using the Break Even Analysis, take the following into consideration when deciding how many points to pay: You should pay zero or close to zero points if: You plan to stay in your home for less than 3 - 4 years You think you will refinance your loan within the next few years You are applying for an adjustable rate mortgage You should consider paying 1 or more points if: You plan to stay in your home for more that 5 years You plan to keep your property as an investment after you move You don't plan on refinancing in the near future