Points/origination is considered a form of interest. Each point is equal to one percent of the loan amount. You pay them upfront at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing. However, you will have lower monthly payments over the term of your loan. To determine whether it makes sense for you to pay points/origination, you should compare the cost of the points/origination to the monthly payments savings created by the lower interest rate. Divide the total cost of the points/origination by the savings in each monthly payment. This calculation provides the number of payments you must make before you actually begin to save money by paying points/origination. If the number of months it takes to recoup the points/origination is longer than you plan to have the mortgage, you should consider the loan program option that does not require points/origination to be paid.

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