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Study: Borrowers lost out by paying points on mortgages

Results may not hold true when interest rates are going up

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Most borrowers who paid points to lower their mortgage rates at a time when interest rates were falling and property values were rising came out behind, and were less likely to take advantage of opportunities to refinance their loans, a new study concludes.  For mortgages originated between 1996 and 2003, less than 2 percent of home buyers held their loans long enough to justify buying points, according to the study, "Do Borrowers Make Rational Choices on Points and Refinancing?" The study's authors, Abdullah Yavas, research director of the Institute for Real Estate Studies at Penn State's Smeal College of Business, and Yan Chang, senior economist at Freddie Mac, analyzed 3,785 mortgage loans. Yavas and Chang wanted to know if borrowers make smart decisions about whether to purchase points or pay higher interest rates. The study found that nearly everyone who bought points during the period studied would have been better off paying higher interest rates, and that those who ...