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Should you pay points? The CV is wrong...

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February 05, 2007

Should you pay points? The CV is wrong...

Dean Foust

The conventional wisdom in recent years is that borrowers shouldn't pay points to buy down an interest rate when they take out a mortgage. That was the conclusion of an influential study by Yan Chang and Abdullah Yavas that received a fair bit of attention. Why? The two researchers concluded that most buyers don't hold a mortgage long enough to justify the hefty upfront cost of points.

If you're likely to hold a mortgage for just a year or two, that's probably sound advice. But Jack Guttentag, a finance professor emeritus at Wharton, writes a provocative essay arguing that there are many homebuyers who WOULD benefit from paying points. He explains why it's often not in the financial interest of a mortgage broker to see his or her clients pay points, and why brokers might actually try to discourage you from paying points. It's a good read, and is available here at Inman News... (The article is free, but better read quick--stories at Inman tend to disappear and become accessible only to paying customers after a few days.)

04:15 PM


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All my articles are avaialble on my web site, often with additional materials as in the case of the recent piece on points. See't_pay.htm

Jack Guttentag

Posted by: Jack Guttentag at February 5, 2007 09:09 PM

"Should you pay points? The CV is wrong..."

who is the "CV" ?

Posted by: Jeff at February 5, 2007 10:33 PM

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