1 point is 1% of the loan amount. You borrow $100,000 and are charged 1 point, your cost is $1000. Point or points are a way for a lender to recover the costs associated with originating a loan. You as the borrower pay the points.

Are points bad?

Not necessarily. Points and interest rate work in opposite directions. If you wish to pay no points, the rate on your loan will be higher. If you wish a lower interest rate, you'll need to pay point(s).

How do I decide?

Generally, if you plan on selling your home within the next two or three years, going with no points or low points is a worthwhile consideration. However, if you're planning on settling down for a few years, you'd be better off paying point(s) so you'll have the lower rate and the lower payment for years to come, saving you thousands in the long run.

Some lenders offer ZERO points, others 1 point, others 2 points. What's with that?

Let's use that $100,000 loan we discussed earlier. Let's assume the rate quoted on that given day is 7.250% with 1 point. (Remember? A $1000 cost.) There's a rule of thumb, that for every .250% "buydown" in the rate, a cost of an extra point is incurred. So, if you had wanted to buy down your loan to 7.000%, you'll need to pay the original 1 point plus the extra 1 point for buying the rate down for a total of two. ($2000). By the way, fractions of points are equally common. You may choose to pay half a point, a point and a half, etc. Interest rate and fee scenarios are best discussed with your loan consultant. Call us at (800) 794-1562 or E-mail us at loandepartment@perfectloan.com