Should you pay points to buydown your interest rate? This is a very common question, whether you are purchasing or refinancing a home. The answer to the question is not universal, it needs to be assessed on a case by case basis.  I like to employ a "36 month rule" when calculating it it makes sense to pay points to buydown a mortgage. If you can recoup the cost of the point paid within the first 3 years of your new loan, it makes sense to pay the point.

 

Example:

 

You would take the cost of the rate ($4,000) and divide it by the monthly savings ($90) and you would get 44.4 . It would take 44 months to recover the cost of the point. If you are going to own the home until you payoff the mortgage, it may makes sense to pay the point. If you think that you may sell within the next 4 years, you probably should take the no point loan.

 

There is another option on a refinance, that is a NO ClOSING COST Refinance mortgage. You can read more about that here.