If you’re planning on building your next rental property instead of flipping it and you’re right in the middle of the construction period, if you obtained a construction loan it will be time soon to replace the construction loan with a permanent mortgage. A “permanent” mortgage is nothing more than lender-paying points for new constructionspeak for a traditional mortgage loan, compared with a temporary short term loan used to build the property.

That said, you will need to get approved for a loan once again if you’ve not already done so and your loan officer will provide you with a variety of rates and terms. You will also ask if whether or not you’d like to pay “points.”

Many borrowers think that points are a fact of every loan as many mortgage rate quotes and advertisements contain them. “5.00 % with 1 point” or some such. But the fact is that points are entirely up to the borrower, not the bank.

One point equals one percent of the loan amount and will reduce a standard 30 year fixed rate by about one-quarter of one percent. That means if you have a $200,000 permanent mortgage coming up at 5.00% you will also be offered 4.75% with one point, or an additional $2,000. The longer you plan on keeping the property the better off you will be regarding points. In this example, $2,000 will drop your monthly payment by about $15.00 per month. Does that seem worth it to you?

If you divide the amount of closing costs associated with the permanent loan by the monthly savings the resulting number will be how many months it will take to “recover” the point paid. If you intend to keep the property longer than the recovery period, paying a point might be to your advantage. Yet whichever you decide, remember it’s you that controls the point contest. It’s entirely your decision.