If you are looking at buying a new house, or considering refinancing your current dwelling, you probably have a number of questions. One of the common questions involves mortgage banker terminology. One of these terms is "points". You are often given the option of whether or not you want to pay "points" on your loan.

At first glance, you may immediately decide you do not want to pay points, as your initial down payment will be higher. However, once you understand what a point is, you may want to reconsider your first impression.

A point is 1% of the total loan amount, and paying a point will reduce your interest rate throughout the entire life of your loan. This will save you money throughout the whole time you have your mortgage. In other words, you can either pay a point now, or pay that amount plus the interest on it later. Either way, you will pay eventually.

Before deciding whether or not to pay points on your mortgage, ask yourself how long you plan to stay in your house. If you are planning to move or refinance within the next four or five years, you may not save any money by paying points. If you are going to live in your house for a long time (and not refinance), points are most likely a good option for you.

When comparing rates from different lenders, be careful to look closely at exactly what rates you are getting, and how many points you have to pay to get those rates. Choose wisely based on how much money you have, how long you plan to stay in your house, and how much interest you want to pay long-term.