Discount points allow you to lower your interest rate. They
are essentially prepaid interest, with each point equaling
1% of the total loan amount. Generally, for each point paid
on a 30-year mortgage, the interest rate is reduced by 1/8
(or.125) of a percentage point. When shopping for loans, ask
lenders for an interest rate with 0 points and then see how
much the rate decreases with each point paid. Discount points
are smart if you plan to stay in a home for some time since
they can lower the monthly loan payment. Points are tax deductible
when you purchase a home and you may be able to negotiate
for the seller to pay for some of them.
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