Which is Best: Points or No Points?

When getting a loan, you often hear about “points.” But what are they, and how do you know if they’re worth it? Which is best for you, points or no points? Let’s break it down.

What are they?

Points are upfront fees you pay to lower your loan’s interest rate. For example, let’s say you’re getting a $200,000 loan, and one point costs 1% of the loan—or $2,000. Paying that $2,000 could reduce your monthly payments because of the lower rate.

Be careful!

But here’s the catch: You need to stay in the loan long enough for the savings to make up for the cost. For instance, if paying points saves you $50 a month, it’ll take 40 months to break even ($2,000 ÷ $50). If you sell or refinance before then, you might lose money.

No points? That’s simpler. You’ll pay less upfront but may have a higher monthly payment. This can be a good option if you plan to move soon or want to keep your cash for other investments.

Which is best?

So, what’s best? It depends on your goals. Do you want to save now, or over the life of the loan? Knowing your plans can help you decide.

This choice might feel tricky, but with the right math and planning, you’ll find what works best for you!

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