Check your understanding

Indicate whether each statement is True or False.

1. On a $300,000 loan, 1.5 points would be $4,500.

That's right! One point is 1 percent of the loan amount. On a $300,000 loan, 1 point would be $3,000 and 1.5 points would be $4,500.
Sorry, the statement is true. One point is 1 percent of the loan amount. On a $300,000 loan, 1 point would be $3,000 and 1.5 points would be $4,500.

2. Paying 1 point will reduce the interest rate by .25%.

You are correct! The amount of points you must pay to reduce your interest rate by ¼% varies over time. It will also depend on your interest rate. The cost to go from 6% to 5.75% may be different than the cost to go from 5.75% to 5.5%. The points to reduce your rate will vary from one lender to another as well.
Sorry, that's incorrect. The amount of points you must pay to reduce your interest rate by ¼% varies over time. It will also depend on your interest rate. The cost to go from 6% to 5.75% may be different than the cost to go from 5.75% to 5.5%. The points to reduce your rate will vary from one lender to another as well.

3. A low rate and high points is better for borrowers who can afford to pay the points, and who plan to stay in their home for many years.

You are correct! The longer you will stay in your home, the more likely you will surpass the breakeven period.
Sorry, the statement is true. The longer you will stay in your home, the more likely you will surpass the breakeven period.

Practice what you learned Do it yourself

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