Financial experts answer questions

Q. I know it's possible to pay points to get a lower interest rate. Is there a maximum interest rate reduction that can be bought? A. Each lender handles discount points differently. (One point equals 1 percent of the loan balance.) How much of a discount you can get for each point you pay and how many total points you'll be allowed to buy is up to the lender. Some let you pay up to four points, but you may be able to find someone willing to let you buy more.

Generally one point can lower your interest rate by 0.25 percent, but this could vary depending on market conditions and on the lender.

There's also an argument in favor of adding the money to your down payment instead of using it to buy down your interest rate. This would lower your mortgage balance and therefore your monthly payment.

The thing you should be most aware of regarding discount points is the length of time it would take to benefit from paying all that upfront interest.

For example, if you pay $3,000 in discount points, you want to be sure that you live in your home long enough to not only recoup that $3,000 but get some benefits as well.

If you had a $100,000 mortgage at 6 percent, your monthly payment would be $600 (principal and interest only). If you paid $3,000 in discount points, your rate could fall to 5.25 percent, saving you $47 a month. But it would take you five years and three months to recover your $3,000 before you would actually start saving money.

If you added the $3,000 to your down payment and reduced your balance to $97,000, you would lower your monthly payment by $18 ($216 a year) starting with your first payment.

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