Points are an upfront charge by the lender that is part of the price of a mortgage. Points are expressed as a percent of the loan amount, with three points being 3 percent. On a $100,000 loan, three points means a cash payment of $3,000. Points are part of the cost of credit to the borrower. Points can be negative, in which case they are "rebates" from the lender to the borrower. Rebates can be used by borrowers to defray other settlement costs. Low rates come with positive points; high rates come with rebates. Lenders offer borrowers a range of interest rate/point combinations, leaving it to borrowers to select the combinations best suited to their needs. How should borrowers make this decision? Low-rate/high-point loans are for borrowers who can meet the cash requirement, and either have a longtime horizon or want to reduce their monthly mortgage payment. High-rate/low-point combinations are for borrowers who don't expect to be in their house very long, or who are short of cash...
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