Should I pay origination points in exchange for a lower interest rate?Origination points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay origination points, you should compare the cost of the origination points to the monthly payments savings created by the lower interest rate. Divide the total cost of the origination points by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying origination points. If the number of months it will take to recoup the origination points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require origination points to be paid.