a higher down payment or paying points for a lower interest rate. Financial
Counseling and Planning, 3, 63-77.
Relative Benefits of Making a Higher Down Payment or Paying Points for
a Lower Interest Rate
Michael L. Walden1
An overlooked decision in homebuying is whether making a higher
down payment or paying points to lower the mortgage interest rate is better.
This paper outlines the relative costs and benefits of each option and
then simulates the options for various mortgage interest rates, lengths
of stay, and tax brackets. Internal rates of return are derived as the
measure of relative rate is superior to making a larger down payment.
Mortgage loans, Credit
and Resource Economics, North Carolina State University, Box 8109, Raleigh,
N.C., 27695-8109. Phone: (919) 515-2258. E-mail: firstname.lastname@example.org