Value of Paying Points

You have the option of paying points to lower your interest rate. This option can be a valuable financial tool to reduce your overall cost of credit over the life of your loan.

A point is equal to 1% of the loan amount. For example, 1 point on a $100,000 loan equals $1,000.  This money could be paid in cash to the lender, or it could be financed as part of the loan.  In either case, your loan rate is discounted by .25% on your loan and 1% on a 1/30 convertible loan.

Points paid in cash or financed as part of a new loan in connection with the purchase of a farm or home can usually be deducted immediately on your personal income tax return.  Points paid to refinance an existing mortgage can be deducted evenly over the life of the loan (consult a CPA).

A good rule of thumb to consider when evaluating points is to anticipate how long you plan on holding the loan.  If it is more than 5 years, then you may win with points. 

Your Farm Credit financial services officer can help you determine whether paying points is right for you.