How to Manage Points on a Mortgage Loan

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    • 1). Determine whether you will be able to put down at least 20 percent of the home's value as a down payment. If not, recommends that instead of paying for points you should put the money toward a larger down payment so you can avoid paying for private mortgage insurance, or at least minimize the time you have to pay for PMI.

    • 2). Ask the lender how much each mortgage point would cost and how much money you would save on your monthly payments by paying for each point. Usually, each point costs about 1 percent of your loan.

    • 3). Divide the cost of the loan points by the amount of money the points will save you on each monthly payment. This way, you can calculate how long you would need to keep your mortgage to break even. For example, if a point costs $2,300 and would save you $40 on each monthly payment, you would have to keep the loan for 58 months to break even.

    • 4). Pay for the points if you expect to keep the mortgage without refinancing for longer than the break-even time frame. If you were to refinance before that time, you would lose money, so paying for the points is not worthwhile.

    • 5). Report the points paid on your income taxes if you itemize your deductions. You can deduct the amount you paid for the points in the year that you take out the mortgage. Use the Internal Revenue Service's Schedule A for Form 1040.

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