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

Posted by: Dean Foust on February 5, 2007

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.)

Reader Comments

Jack Guttentag

February 5, 2007 9:09 PM

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

http://www.mtgprofessor.com/A%20-%20Points/is_it_true_that_paying_mortgage_points_doesn't_pay.htm

Jack Guttentag

Jeff

February 5, 2007 10:33 PM

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

who is the "CV" ?

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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