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What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition, 2nd Edition by Frank Gallinelli

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CHAPTER 33Calculation 27: Points

What It Means

Points are fees that you pay to the mortgage lender as a premium for making the loan. They represent a form of prepaid interest on the loan.

One point equals 1% of the mortgage loan amount.

With most lenders, you can negotiate an interest rate/points mix. The lender may offer a loan at a particular rate with no points, but also offer loans with progressively lower rates if you are willing to pay points. Questions such as, “Is it better to pay 6% with 2 points or 6.5% with no points?” invariably arise. The answer depends on the number of points, the interest rate reduction, and the length of time you are likely to keep this loan in place. A quick, although admittedly imprecise way, of answering that ...

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