The question of what points are and whether to pay them is one that needs further explanation.  What
are they?  They are additional upfront fees that you pay the lender for the opportunity to reduce your loan’s interest rate over the life of the loan.

The fee for one point is equal to 1% of the total new loan amount.  In San Mateo County, the normal loan written is for a Jumbo loan, so you need a serious amount of cash for a reduction of 1 point.  That cash is required at closing time which is why paying down points isn’t always something you can or should consider.

Go Slow

The term Point might be mentioned to you in several ways.

• Loan Origination Fee
• Discount Fee
• Warehousing Fee
• Funding Fee

You get the idea.  If the word “fee” shows up, be sure you know what it is for and then decide whether you want to pay it. We are in a market with some fluctuating rates so be expected to hear more about Points.  The good news:  They are tax deductible the year you pay them just like you deduct your mortgage interest.

Does it make sense for you to pay down points for a lower interest rate on your loan?  Only you can decide that one.

• Are you planning of staying in that house for a long time?

If so, then it might be a consideration.

• Do you have a large saving account on hand?

If so, it could be a consideration and it won’t be difficult to bring the additional cash to the table.

• Will you keep the loan a long time before refinancing?

If yes, then it could be a consideration.

• Do you like to refinance your loans as soon as a lower rate comes along?

If so, it should not be a consideration.

Points work if you have cash on hand, plan on staying put for a while and don’t refinance your loans a
lot.  Be sure you know what that “fee” is on your Settlement Statement.  Move forward with caution.  It’s not a new gimmick, just something new to most of you and definitely unique to our country.  And only you can decide if 1% per point is too much for your budget.  Humm, I wonder why?