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Points or Rate: Which is the Right Choice?
05/15/24
When you qualify for a mortgage, you’ll generally be offered different terms. One choice you’ll make is whether to pay additional points for a lower interest rate. For example, you may qualify for a 3.5% loan with no points or a 3% loan with 1 point (a point is a percent of the amount you borrow; on a $200,000 mortgage, one point equals $2,000).
A lower interest rate means lower monthly payments. So, what should you do? The basic rule of thumb is if you plan to stay in the home for more than three or four years then paying points will pay off in the long run. If you stay in the home for a shorter period, you won’t have enough time for the lower payment to offset the cost of getting that lower payment amount.
An easy way to calculate the difference is to divide the cost of points by the amount you’ll save on your monthly payments; the result is how many months it will take to pay off that "investment" in points. Say you save $45 a month by paying $2,000 for one point; in simple terms it will take forty-four months, or a little over 3.5 years, for that investment to pay for itself. After that the savings will go into your pocket − and paying the point makes good financial sense.
Ready to explore how Sunflower Bank can assist you? Speak to a personal banker at a branch near you, contact a specialist on our Private Wealth team, or find the right financial partner on our Commercial Banking team for your business needs.
This article contains general information only. Sunflower Bank, N.A. is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. It is not meant as a substitute for such professional advice or services. Before making any decisions related to these matters, you should consult a qualified professional advisor. Investment and insurance products are not FDIC-insured, are not a deposit or other obligation of, or guaranteed by the bank or an affiliate of the bank, are not insured by any federal government agency and are subject to investment risks, including possible loss of the principal amount invested.