Should I pay points to lower the rate?

This calculator calculates the monthly mortgage payment for two mortgage loans, given their respective interest rates and other loan terms, and helps you determine whether paying additional charges for a specific interest rate (or discount points) in exchange for a lower interest rate is a good deal.

Either or both of the loans may be fixed- or adjustable-rate mortgages (ARMs).

Payments on an adjustable-rate mortgage are fixed for an initial period and are usually adjusted annually after the initial period. For example, a 3/1 ARM loan would have a fixed rate for the first three years and be readjusted once a year thereafter.

The interest rate on an adjustable-rate mortgage loan is usually reset on the loan's anniversary date. To calculate the new rate, a spread, or margin, is added to a widely used index rate.

Two widely used index rates are the yield on 1-year constant maturity U.S. Treasury bills (CMT) and the 11th District Cost of Funds Index (COFI), published by the Federal Home Loan Bank of San Francisco.

Your monthly payment increases or decreases with a change in the loan interest rate. Because loan payments change periodically, adjustable-rate mortgages are not for every homeowner.

Adjustable-rate mortgage loans usually have a periodic and lifetime cap that limit how much the interest rate can change in one period and the maximum interest rate during the lifetime of the loan, respectively.



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