How do I: Decide if a lower rate is worth more points?

What you need to know

• How long do I plan to stay in the house? These days, few people stick around in the same house long enough to pay off their mortgage. If you are planning on moving in a few years or have a family that could be growing, buying points may not make sense.
• How much will I really save?  Even if you do stay in a house long enough to realize savings from paying points, you may not save as much as you think. On a $200,000 mortgage, the difference in the monthly payment between an interest rate of 6.5 percent and 6 percent is only $65.04 a month. If you pay $4,000 for those 2 points (about what a half-point rate cut costs), it will take you about five years to break even (excluding tax benefits). You may decide that money could get a better return elsewhere.
• How much are you putting down? If the answer is less than 20 percent, you'll most likely get socked with private mortgage insurance, or PMI, which will likely outweigh the benefit of a slightly lower interest rate.
• What's my tax picture? Mortgage points are tax-deductible. Depending on your tax situation, the benefits of points may outweigh the cost.