Mr. and Mrs. Zeller close on a 20 year home loan for $150,000. The monthly payment with no points is $1,160, but if they buy a point it is $1,150. What might you infer if Mr.and Mrs. Zeller choose not to buy a point?

One point on a $150,000 loan costs $1,500. It would save $10 per month ($1,160 − $1,150), so it takes 150 months, or 12.5 years, to recover the cost. If the Zellers choose not to buy the point, they may expect to sell before then; the 5-year plan is the best choice.

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