Nina Park is comparing two otherwise similar 30-year fixed loans. One has a 6.50% rate with no points, and the other has a 6.25% rate with 2 points. Nina is fairly sure she will sell the home in about 18 months. Which choice is generally more sensible?
Correct Answer
D) Taking the no-point loan, because she may not keep the loan long enough to recover the upfront points
Discount points increase upfront closing costs in exchange for a lower interest rate. If Nina expects to keep the loan for only a short time, she may sell or refinance before the monthly savings repay the upfront points, so the no-point option is generally more sensible.
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