The conventional wisdom in recent years is that borrowers shouldn't pay points to buy down an interest rate when they take out a mortgage. That was the conclusion of an influential study by Yan Chang and Abdullah Yavas that received a fair bit of attention. Why? The two researchers concluded that most buyers don't hold a mortgage long enough to justify the hefty upfront cost of points.

If you're likely to hold a mortgage for just a year or two, that's probably sound advice. But Jack Guttentag, a finance professor emeritus at Wharton, writes a provocative essay arguing that there are many homebuyers who WOULD benefit from paying points. He explains why it's often not in the financial interest of a mortgage broker to see his or her clients pay points, and why brokers might actually try to discourage you from paying points. It's a good read, and is available here at Inman News... (The article is free, but better read quick--stories at Inman tend to disappear and become accessible only to paying customers after a few days.)

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